Indian Economy News

Core sector growth rises to 4.4% in May

Mumbai: Growth in production in the eight key infrastructure sectors hit a six-month high of 4.4 per cent in May, after two consecutive months of decline, indicating a recovery in industrial activity. The index of these eight core sectors grew 3.8 per cent in the corresponding month last year.

In February this year, the eight sectors had recorded growth of 1.4 per cent.

Cumulatively, growth in the eight core sectors — coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity — in the first two months of this financial year fell to 2.1 per cent from 4.7 per cent in April-May 2014-15. This was largely because in April, output declined 0.4 per cent, according to data released by the Ministry of Commerce and Industry on Tuesday.

In May, production of refinery products jumped 7.9 per cent, against contraction of one per cent, 1.3 per cent and 2.9 per cent in February, March and April, respectively. Overall, output of refinery products in April-May rose 2.6 per cent, against contraction of 1.9 per cent in the corresponding period last year.

Coal production increased 7.8 per cent year-on-year in May. In May 2014, it increased 7.9 per cent. Production of steel and cement rose 2.6 per cent each in May, against growth of 0.6 per cent and contraction of 2.4 per cent, respectively, in April. However, these fell from 3.3 per cent and 8.4 per cent growth, respectively, in May last year.

Economists said though the positive run might not continue, considering steel and cement production might fall from June, in line with the trend, the Index of Industrial Production (IIP) might show healthy growth, as the core sector has 38 per cent weight in industrial output. Even when core sector production contracted in April, IIP rose 4.1 per cent, primarily due to a surge in the volatile in capital goods segment.

Madan Sabnavis, chief economist, CARE Ratings, said: "With such an improvement in the core numbers, I expect the May IIP to be between three and four per cent. However, there might not be correlation between IIP and core all the time. Last year, we had seen how despite good core, IIP had contracted. More, we need to see what happens from June. It will be too early to call this as a recovery."

In May, electricity generation grew 5.5 per cent, against a decline of 1.1 per cent in the previous month. In May 2014, electricity generation rose 6.7 per cent. For April-May this year, electricity generation rose 2.2 per cent, against 9.2 per cent in the year-ago period.

"In May, the core sector recorded its highest level of growth in the past six months," said Rishi Shah, economist, Deloitte. "However, growth has been weak in the core infrastructure industries and, as such, data in the coming months would be crucial in determining if we are indeed witnessing a sustained turnaround."

He said coal production continued to grow at a healthy 7.8 per cent, while electricity growth rebounded to 5.5 per cent after contracting in April. "The growth in steel production was encouraging. But given the condition of the domestic steel sector and the global demand outlook, these numbers need to be looked at carefully," Shah said.

"Growth in cement production, after a gap of two months, is also a positive, though we would watch it for another few months to see if it sustains. Overall, the number bodes well for IIP growth in May."

Fertiliser production grew 1.3 per cent in May, against growth of 17.6 per cent in the corresponding month last year. Natural gas was the only segment that witnessed contraction, of 3.1 per cent, in May. This segment hasn't recorded growth in 12 months. Five more segments - crude oil, refinery products, steel, cement and fertilisers --- recorded a fall in production in April.

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