Core sector disappoints

Core sector disappoints
The Economic Times, August 28, 2009, Page 14

It Could Impact Broader Economy

THE July numbers for infrastructure sector performance have delivered a small blow to rising expectation of a quick turnaround in economic growth. The core sectors, key drivers of economic activity, grew a disappointing 1.8% year-on-year (y-o-y) in July 2009, after a robust 6.8% y-oy expansion in June. Prima facie the slower growth was due to the lower output of the petroleum refinery sector, with production declining 14.4% during the month owing to maintenance shutdown at the Reliance Industries plant. But performance of sectors such as electricity did not particularly inspire confidence. Electricity generation, critical to keep industries running and pumpsets operating in farmlands, grew only 3.3%, y-o-y, in July. But the output declined for two consecutive months, as rains played truant. Coal output looked good during the month under review, rising 9.7%, but the sector reported decline in three of the four months this fiscal. Similarly, the growth of cement industries, rising 10.6%, gives the impression that construction activity has recovered. Here too, output declined monthon-month after a robust performance in March 2009 and the argument that it is in line with the trend seen during this period of the year offers little consolation.

The sub-optimal output of some infrastructure sectors such as electricity is telling on industrial performance. In many states huge power cuts are hurting production. Industrial units have stopped working as the power situation worsens. Elsewhere, the agriculture sector bears the brunt of low availability of power. If such lackadaisical performance persists in the critical core sectors of the economy, there could be more damage to the incipient recovery in growth experienced over the past few months. That should not be allowed to happen. Immediate short-term steps are required to reduce the gaps in infrastructure and prevent a fresh crisis. Growth is, anyway, already threatened by the deficient monsoon this year. Contraction in agriculture will hurt other sectors, as rural demand for various goods and services will decline. In this scenario, it is necessary that critical infrastructure sectors put up a strong performance.