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Core sector jumps; still not a recovery: Experts

The core sector had grown 3.8 per cent in May 2014 while contracting 0.4 per cent in April and 0.1 per cent in March this year.

By: ENS Economic Bureau |
July 1, 2015 12:49:33 am
core sector jump, core jump, industry jump, core sector profit, core sector boost, core sector industry boost, coal, crude oil, natural gas, fertiliser, refinery, steel, cement, business news Given the volatile nature of the data, economists refrained from terming it a turnaround even as they agreed that a mild recovery is visible.

Eight core sector industries grew 4.4 per cent in May, the highest in the last six months, with sectors including electricity, steel, cement and refinery products posting robust growth. The core sector had grown 3.8 per cent in May 2014 while contracting 0.4 per cent in April and 0.1 per cent in March this year. However, given the volatile nature of the data, economists refrained from terming it a turnaround even as they agreed that a mild recovery is visible.

core sector jump, core jump, industry jump, core sector profit, core sector boost, core sector industry boost, coal, crude oil, natural gas, fertiliser, refinery, steel, cement, business news Output of eight infrastructure sectors expanded by 4.4% in May 2015 (in %)

The core sector acts as a barometer for growth in the infrastructure industries, which propel the overall economy. An analysis of the core sector data, which comprises coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity, shows that barring four months (June, August, October, November) when it witnessed growth above 6 per cent, the core industries have largely grown within 1.2-4 per cent range, not showing much improvement. Core sector accounts for around 38 per cent of the index of industrial production (IIP).

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“This is going to be a tough year due to rising non-performing assets, high leverage by infrastructure companies and a not-so-supportive global environment. Things are improving but only mildly. Macro-economic conditions would get better but ground realities will not improve much. Companies are not in a position to invest as they have excess capacities and are highly leveraged. It is therefore unlikely that the core sector will be any better any time soon,” DK Joshi, chief economist, Crisil, told The Indian Express.

The eight infrastructure industries had grown 6.7 per cent in November last year and has been on the path of moderation ever since. Joshi said that over the last 3-4 months there has been some improvement and overall, “some indicators such as inflation, fiscal deficit, current account deficit and GDP look slightly better.”

However, “if you look at corporate profit, IIP, core sector, it shows weakness. This indicates that the ground level data is yet to show even a moderate growth. Unless you see a sustainable trend, which we aren’t seeing, it is difficult to call this (core sector data) a recovery,” he said. During the month, coal production increased by 7.8 per cent as compared to 5.5 per cent in May 2014 while refinery products grew 7.9 per cent as compared to a contraction of 1.8 per cent during the same period last year. Crude oil production increased by 0.8 per cent while steel and cement grew by 2.6 per cent. While fertiliser output grew by 1.3 per cent, natural gas recorded a contraction of 3.1 per cent in May.

core sector jump, core jump, industry jump, core sector profit, core sector boost, core sector industry boost, coal, crude oil, natural gas, fertiliser, refinery, steel, cement, business news

Rating agency ICRA said that the growth in the core sector industries has come as a respite and it would support a pick-up in the pace of industrial expansion in May. “Although the extent of the same (pick-up in IIP) would be tempered by factors such as an adverse base effect, contraction of non-oil merchandise exports and automobile production trends,” it said in a statement. IIP data is likely to be released on July 12.

The volatility in the data notwithstanding, economists have also been maintaining that the data is collated on the old base and there is a pressing need to revise the base year upward. They have also argued that the data is understating the growth happening in the economy. “I feel it is understating the growth,” Joshi said.

 

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