The output of eight core-sector industries surged to a 15-month high of 5.7% in February, marking a third straight monthly rise and recording a broad-based recovery, according to the official data released on Thursday. Barring coal, seven of the core sector constituents recorded a sequential improvement in February. A year-on-year contraction in steel output was also contained at just 0.5% in February, compared with a fall of 8.4% in the previous month, suggesting the government moves to protect domestic primary steel producers against cheaper imports were starting to have an impact, said analysts.
The broad-based improvement in core sector growth in February will likely support the IIP (index of industrial production) estimate for the month, although the performance of the IIP in February could remain weak due to an unfavourable base (It had grown 4.8% in February 2015). The core infrastructure industries have a combine weightage of roughly 38% in the IIP.
Despite the improvement, steel remained the only core to record a contraction in February, thanks to poor demand from end-users as well as the availability of cheaper imports. The imposition of minimum import price for steel imports helped to restrict the contraction to just 0.5% in February 2016 from an average of 5% in the previous three months. The imposition of minimum import price rendered pulled down imports and prop up domestic production.
In coal, the slowdown in growth to 3.9% in February from as high as 9.1% in January are expected to have been caused by a build-up of inventories.
Electricity generation touched a five month high of 9.2% in February, led by a double-digit growth of thermal electricity generation of 12%, the impact of which was dampened by an 11% contraction in hydro electricity generation. “If the monsoon in 2016 is normal after a gap of two years, hydroelectricity generation is expected to receive a substantial boost, which would improve the overall pace of expansion in power generation,” said Aditi Nayar, senior economist at ICRA.
Cement output growth has risen for a third straight month to a robust 13.5% in February. “With demand from end-users, including cement-intensive infrastructure, rural housing etc. remaining modest, the double-digit growth in cement output is unlikely to sustain,” Nayar said.
The two other sectors that witnessed a huge improvement in February were crude and natural gas. Crude output rose 0.8% in February, compared with a fall of 4.6% in the previous month. Similarly, natural gas output picked up 1.2% in February, against a 15.3% contraction in the previous month.
Crude, natural gas and steel were the worst performer since the beginning of the last fiscal. Domestic steel production has been badly hit by cheaper imports, especially after Chinese mills started dumping in the global market to cut huge inventory, analysts said. No wonder, the segment witnessed contraction in each month since June last year.