The Hindu Business Line : ‘Core’ slowdown

The performance of the six core infrastructure industries may not be as widely tracked as the IIP, but it is still an important lead indicator on the economy. This indicator measures growth in core sectors such as electricity, coal, cement, finished steel (carbon), refinery products and crude petroleum sectors and has a combined weight of about 26.7 per cent in the IIP. The core sector numbers usually set the tone for the IIP numbers.

Growth slows in January

In January 2008, all six core sectors recorded slower growth compared to the same month last year. Core sector production has grown at 4.2 per cent vis-À-vis 8.2 per cent in January 2007. A slowdown in demand for manufactured goods and a moderation in real estate activity (due to increasing cost of funds), along with supply-side constraints for sectors such as cement could have put the skids on the core sector growth numbers.

This is also reflected in the IIP, which grew at 5.3 per cent when compared to a little above 11 per cent last year. As production in the core sectors, which provide inputs to the manufacturing sector declined, so did the manufacturing output, which, with a weight of about 80 per cent in the index, grew only 5.9 per cent in January 2008, precipitating the overall decline.

As with the IIP, the ten month (April 2007-January 2008) growth numbers for the core industries too point to a slowdown.

Sectoral trends

The six core infrastructure industries saw a growth of 5.5 per cent, against 8.9 per cent in the corresponding previous period. Have all the six sectors contributed equally to this slowdown? Monthly numbers beginning April 2007 reveal interesting trends.

Coal production took a hit in the first four months beginning April but outperformed in the October-December period. In fact, it was the only segment that showed a higher year-on-year growth in these three months while the others faced a downturn. The sector recorded a cumulative growth of 4.8 per cent for the April-January period, close to the 5.2 per cent growth last year.

Electricity too saw cumulative growth more or less matching the previous year’s figures. Among the remaining four, the cement sector has slowed down, no doubt, (due to reasons mentioned earlier), but it has not pulled growth downwards as much as the crude oil, petroleum refinery products and the finished steel segments.

Unavailability of rigs, and lower production in the Bombay High oil-fields in the latter half of the year has seen crude oil grow by a marginal 0.3 per cent in the ten months ended January 2008, as against 5.9 per cent last year. Petroleum refinery products and finished steel too followed suit, recording only half the growth witnessed in the same period last year.

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