Infrastructure sector rebounds in April

Infrastructure sector rebounds in April
Business Standard, June 3, 2009, Page 1

BS Reporter / New Delhi

Index of six core industries up 4.3%, highest since July 2008.

Hopes of an economic recovery grew, with data for the output in six core infrastructure sectors rebounding in April, showing a 4.3 per cent increase — the most since July 2008 — on a better-than-expected performance in coal, electricity and cement.

These sectors collectively account for 27 per cent of the Index of Industrial Production.

The output in the sector during April is more than the 2.7 per cent increase seen in the previous month, and about double of what was seen in the year-ago month. April's jump would have been higher, but for the substantial dip in production of crude oil and petroleum products (see table). IIP had dipped 2.7 per cent in March 2009, the most since inception of the updated index in 1994.

“Government spending in the infrastructure sector could be one of the key reasons for this increase. The IIP is definitely going to be in positive territory in April,” said DK Joshi, principal economist, Crisil.

The data showed a record increase in coal production during the month under consideration. Industry experts attribute this to output from new mines. About 75 per cent of the overall coal production is used to fire power plants, which recorded a reasonable increase in output during April. Economists said additional demand for power as a result of rising industrial activity could be a possible reason for this increase in output during April.

Cement production growth in the month under consideration was the highest since February 2007, pointing towards increased activity in the infrastructure sector. Experts, however, point out that construction activity in the housing sector, a major user of cement, is yet to pick up. The sector is likely to see 50 million tonnes of additional cement capacity in 2009-10.

Steel production also improved in April over the previous months. The sector has been seeing a dip in production since October 2008, barring the first two months of 2009. Domestic producers have been alleging that many steel products like hot rolled coils are being dumped as a result of falling demand elsewhere.

However, petroleum sector production remained lacklustre. Refinery output in April was also the lowest in more than two years. Crude oil production has been dipping continuously since June 2007, November being an exception. There has been no discovery of high-yielding oil fields in the country, while output from existing oil wells is declining.