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BL Research Bureau

For the first time since April, growth in the six core infrastructure industries (crude oil, petroleum refinery, coal, electricity, cement and finished steel) has crossed 4 per cent, growing by 4.3 per cent in July. This has been led by the growth in the output of petroleum refinery products, electricity and cement sectors.

Even though the growth on a month-on-month basis gives some reasons to cheer, a comparison with the 7.2 per cent growth achieved in July 2007 substantiates the continuation of the slowdown that the economy has been reeling under in the past few months. Since December last year (barring February) core sector growth has been hovering around the 3.5 per cent levels. Cumulatively in the April -July 2008 period, core sectors have grown at roughly half of last year’s levels — 3.7 per cent vs 6.6 per cent in the first four months of 2007.

Ironically, along with finished steel, two of the sectors that have helped better the numbers in July — petroleum refinery and electricity have slowed the maximum. From 11 per cent growth in April-July 2007, ‘petroleum products’ (which have the maximum weightage in the index), has grown at only 5.4 per cent in April-July 2008. Growth in electricity generation is at a mere 2.6 per cent compared with 8.1 per cent in April-July 2007. Finished steel production too has dipped from 6.8 per cent to 3.8 per cent in this period.

A slowdown in demand for manufactured goods and in real estate activity (due to increasing cost of funds) along with supply side/capacity constraints for sectors such as cement, power and crude oil could have been the reasons for this decline.

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