Slowing factory output shadows core sector growth

The core sector has a big say in which direction the Index of Industrial Production will move.

Written by Shruti Srivastava | Published: September 4, 2013 1:58:42 am

The core sector has a big say in which direction the Index of Industrial Production will move. It has a 37.9 per cent weightage in the index. The Reserve Bank of India’s annual report says among all the factors which impact industrial production,movement in the infra sector ranks above interest rates and credit offtake.

So the 3.1 per cent growth recorded by the core sector as a summary indicator for the sector could mean growth is returning to the larger industrial sector. However,if one looks at the growth in IIP and the core sector over last one year,while the core sector has been positive except February 2013,when it contracted 2.4 per cent,IIP has witnessed huge volatility,contracting half the time during the last 12 months.

For example,in September 2012,while the core sector grew 5.1 per cent,IIP contracted 0.7 per cent. This has been mainly on account of slowdown in the manufacturing sector,which comprises 75 per cent of the IIP.

According to HSBC Manufacturing Purchasing Managers’ Index,the sector witnessed sharp contraction in August,falling to 48.5 as both domestic and export orders fell. This is the first time in more than four years that the manufacturing has contracted.

Though a growth in electricity and coal shows that both hydel and coal power generation is taking place,decline in crude oil and natural gas is a cause of worry,especially at a time when oil is ruling over $114 per barrel and the import is becoming expensive due to the depreciation of rupee.

Still after the dismal GDP number for the first quarter last week,just 4.4 per cent,the growth in the core sector for July could be a reason for cheer.

Shruti is a senior correspondent based in New Delhi

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