India’s core infrastructure sectors expanded by 2.3 per cent in December, lower than 3.2 per cent rise in the same month a year ago, due to poor performance by steel and electricity sectors- which constitute nearly 60 per cent weight in the index. In November, the index of six core industries grew at 1.8 per cent.
In the April to December 2008, core sector production expanded 3.5 per cent against 6 per cent in the corresponding months on the previous year. (Refer table)
These six core sectors- crude oil, petroleum refinery products, coal, electricity, cement and finished (carbon) steel- account for just over a quarter of Index of the Industrial Production (IIP), which economists predict to grow marginally in December, 2008.
“The worst effect of industrial slow down is approaching an end. This will get reflected in IIP which is expected to grow 2.4 per cent in December”, said Soumendra Dash, chief economist of credit rating agency CARE. “The fiscal stimulus and easy monetary measures are showing the results,” he added.
IIP had dipped 0.3 per cent in October, 2008, but registered a growth of 2.4 per cent in November 2008. IIP data for December is expected to be released in the first week of February.
“We are not likely to see dip in the IIP in the months up to March, 2009. But the growth in industrial production is expected to be muted,” said Shubhada Rao, chief economist, YES Bank.
Electricity generation during the month under consideration was the lowest in the April to December period, as demand for power waned due to lesser industrial activity.
“This is because of pervasive lull in industrial activities. The slow down in the effective demand is playing a key role in the demand in the manufacturing sector and it is having cascading effect in the decrease demand for the electricity,” said Dash.
The slump in electricity production in December can also be attributed to lower output from hydel and nuclear plants. Only thermal plants produced more electricity in December compared to the same month in 2007.
Production of Finished (carbon) steel- which has 5.13 per cent weight in IIP- dipped close to one per cent, as steel companies reduced factory output to adjust for slowing demand from infrastructure and auto sectors- the two key demand drivers- in the back drop of the global economic crisis.
Industry sources maintain that steel factories have seen some kind of revival in demand for the metal in January.
Cement production remained robust in December and expanded the highest in the April to December period. In the quarter ending December, one sees a revival of cement production as monsoons withdraw.
Coal production also recorded strong growth, as thermal plants needed the mineral to produce electricity.
| Index of six core-infrastructure industries - December -2008 | |||||
| Sector | Weight (%) in IIP | Dec - 07 % growth | Dec - 08 % growth | Apr-Dec 07-08 % growth | Apr- Dec 08-09 % growth |
| Crude Petroleum | 4.17 | -1.40 | -0.30 | 0.30 | -0.50 |
| Refinery Products | 2.00 | 1.90 | 3.00 | 7.50 | 3.70 |
| Coal | 3.22 | 8.40 | 9.40 | 3.50 | 10.10 |
| Electricity | 10.17 | 3.90 | 0.70 | 6.60 | 2.60 |
| Cement | 1.99 | 4.40 | 11.60 | 7.70 | 7.00 |
| Finished Steel (carbon) | 5.13 | 1.80 | -0.80 | 6.40 | 2.70 |
| Overall | 26.70 | 3.20 | 2.30 | 5.90 | 3.50 |
| Source: Commerce and Industry Ministry | |||||
Data released today also showed that crude oil production slumped, as Indian oil fields like off shore rigs in Bombay High produced less. There has been no major discovery of oil fields in the country in the recent past even as out put from existing fields decreased.
Production in petroleum refineries also expanded more than the levels seen in the year ago month as consumption of fuels went up.
