Core sector growth jumps to 9-month high

New Delhi: Output of eight crucial industries grew 7.3 per cent in June, the highest expansion after September 2013 and more than three times compared to just 2.3 per cent in May, official data showed on Thursday. This might augur well for the Index of Industrial Production (IIP) since these industries have almost 38 per cent weight in the index, feel economists.

Expansion of these industries had stood at just 1.2 per cent in a year ago period of June, 2012, which was also a factor in magnifying the growth in June of this year. Called core sector, these eight industries - coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity - had risen eight per cent in September, 2013 at aggregate level, the earlier highest figure.

In the first quarter of the current financial year, core industries expanded 4.6 per cent from 3.7 per cent in the year-ago period.

In June, electricity generation recorded a phenomenal growth of 15.6 per cent, more than double of 6.3 per cent in the previous month. It was closely followed by the cement sector, which rose 13.6 per cent against 8.7 per cent in the previous month. Coal production also rose 8.1 per cent against 5.5 per cent. Steel production went up by 4.2 per cent against contraction of two per cent in May.

Production of crude oil and refinery products remained range-bound. Natural gas production fell 1.7 per cent in June against a decline of 2.2 per cent in the previous month. There is no single month in at least a year when natural gas production rose, clearly showing the problems the sector is engulfed with including pricing policies of the government. After rising for previous two months, fertiliser production again slipped into contraction by one per cent. Since the core sector constitutes more than one-third of IIP, the industrial growth is also expected to be robust in June, data of which will come in August.

"Yes, IIP growth is expected to be strong. We expect close to five per cent growth in the index," said Arun Singh, senior economist with Dun & Bradstreet India. IIP growth had stood at 4.7 per cent in May.

If IIP indeed grows by five per cent in June, it would the second month of high growth compared to previous months. The industrial growth was highest at 2.6 per cent in July in 2013-14. IIP contracted in seven months of the year.

However, there is no one-to-one relation with core industry and IIP growth. For instance, the core sector expanded just 2.3 per cent in May and IIP rose 4.7 per cent. On the other hand, core sector grew 4.2 per cent in April and IIP went up by 3.4 per cent. Singh attributed this to poor showing by the other 60 per cent of IIP, including capital goods, consumer durables and basic products.

Volatile nature of capital goods could be seen as hindrance to exact link between core sector and industrial growth.

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.