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| Core sector grows 3.4%, slowest in 10 months |
| BS Reporter / New Delhi Jul 29, 2010, 00:48 IST |
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Growth in six key infrastructure sectors, which comprise the core sector, decelerated to a 10-month low of 3.4 per cent in June, primarily due to a high statistical base effect of last year. The growth registered deceleration for the third month.
The core sector, with a 26.6 per cent weight in the Index of Industrial Production (IIP), stood at 6.3 per cent during the corresponding period in 2009. The infrastructure sector had posted a recovery in June last year and had registered a three percentage point increase from the previous month. In May this year, the growth for the six key sectors was 5 per cent. During April-June, the core sector output rose at 4.6 per cent from 4.3 per cent in the year-ago period.
Analysts have termed the extent of deceleration as unexpected. However, they said moderation in the core sector and manufacturing index would continue.
Most feel the overall industrial growth, in double digits for eight consecutive months since October 2009 and at 11.5 per cent in May, would have moderated to single digit level in June.
The moderation will be primarily guided by high statistical base effect of 2009, when the growth in core and manufacturing sectors had picked up sharply in June. The industrial growth had stood at 8.3 per cent in June 2009.
“For the core sector data, I will attribute the fall to volatility in data and this is not a sustaining trend. The IIP growth, too, will not stay in double digits as the base effect will wear off in June and the data will stabilise in the range of 9-10 per cent,” said Rupa Rege-Nitsure, chief economist , Bank of Baroda.
However, some analysts are also apprehensive of the continuing trend of low core sector growth, which has consistently lagged behind industrial growth in the current financial year.
“The core sector data fluctuates a lot and it might go up next month. But if you take the April-June growth, it has lagged behind industrial growth and this is not a good trend. If this continues, it might create bottlenecks for overall growth,” said D K Joshi, principal economist with Crisil, a ratings agency. Joshi also expects the IIP growth to moderate to high single digit level in June.
During June, only crude oil has shown a better growth rate of 6.8 per cent compared to 5.8 per cent in the previous month of May and 4 per cent during the corresponding period in 2009. Apart from crude oil production and petroleum refinery products, rest of the sectors posted a sharp deceleration from their respective growth rates during June 2009.
Even as growth in sectors like cement and steel have shown considerable deceleration, analysts say that going by strong credit flow to construction sector, the activity and growth in construction and allied sectors is still quite robust.
“The credit that banks are extending to the power sector, the robust activity in the construction sector point that the core sector growth is still strong. One should not heavily rely on a single data,” Nitsure added.
Coal and electricity production grew at 0.9 per cent and 3.4 per cent respectively as against 15.2 per cent and 7.7 per cent in 2009. Growth of cement and finished steel production also slowed down to 3.6 per cent and 3.5 per cent respectively as compared to 12.7 per cent and 3.6 per cent during the corresponding period last year.
Production of petroleum refinery products grew at 2.9 per cent during the month against a negative growth of 3.8 per cent last year. However, the growth in petroleum refinery products during June was slower than the 7.7 per cent growth registered in the previous month.
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