Core growth up 6.5%

Core growth up 6.5%
The Financial Express, July 24, 2009, Page 1

fe Bureau, New Delhi

Riding double-digit growth in cement and coal output, the index of six core infrastructure industries expanded 6.5% in June, the most in 16 months. Buoyed by this robust performance and given that the Core Six have a 27% weight, economists expect positive news on the index of industrial production, which expanded 2.7% in May.

The latest core sector numbers are an improvement over the 5.1% growth seen a year earlier, as well as the dismal 2.8% seen in May 2009. In the three months ended June this year, the sector grew 4.8%, against 3.5% in the corresponding period last year.

This better-than-expected showing was aided by the base effect—the sectors had lower output in the year-ago period—pushing up growth in June. Barring petroleum products and finished carbon steel, absolute figures in the four remaining sectors were lower than those in the previous month.

Economists maintain that there are tell-tale signs of recovery in the economy. “It seems the green shoots that were seen in previous months are sprouting faster,” said YES Bank chief economist Shubhada Rao.

“This is an indication that both the government and industry are working in partnership,” said commerce minister Anand Sharma at a function organised by Ficci. “It is clear that the stimulus that the government has given has had a positive impact,” he added.

However, India’s chief statistician, Pronab Sen, maintained that the core sector data is not necessarily indicative of a revival. “The core sector is driven by supply-side dynamics and not demand. Hence, I would not draw any conclusions,” he told FE.

A dip in petroleum product output weighed down the sector as a whole. The boost came from the coal sector, where production grew 15%—the most in over two years. But actual output from coalmines in the month stood at 39.33 million tonne, a ten-month low.

Cement production posted a growth of nearly 13% in June, but actual output stood at 17.1 mt, a five-month low. Annual crude oil output growth in June was the highest since August 2007. This was because of the unusually low output from Indian oilfields, where no significant discoveries have been made in the recent past.

The 7% increase in power output was aided by demand for more electricity from factories. But in June, thermal, hydel and nuclear plants generated 62,645.5 mw of electricity, the lowest since February.