The index of eight core industries released by Office of the Economic Adviser showed growth slumping to 1.4 per cent in February, the lowest in 16 months, over the year-ago period after growing 1.8 per cent in January. The cumulative growth during April 2014-January 2015 eased to 3.8 per cent compared with 4.2 per cent in April-December 2014.
The eight core industries which are a lead indicator for industrial production comprise nearly 38 per cent of the weight of items included in the Index of Industrial Production (IIP). The slump in the core industries shows that the industrial activity is still far away from recovery and the government needs to do more to kick-start the industrial sector. While the base years for CPI and GDP have seen revisions, the index for eight core industries and IIP are still being assessed at 2004-05 prices and would probably be revised this year.
Sectoral composition
The survey shows that five of the eight core industries contracted contributing the second consecutive month of decline in growth. Of the eight sectors—coal, natural gas, petroleum refinery, fertilizers, steel, cement, electricity and crude oil—coal recorded the highest rate of growth at 11.6 per cent.
Electricity generation, which has the highest weight of 10.32 per cent, increased by 5.2 per cent and registered a cumulative growth of 8.6 per cent for the April-February period. Steel industry, which has the second highest weight, contracted by 4.4 per cent for the month.
The largest contraction was recorded in the natural gas sector at 8.1 per cent; the sector has a weight of 1.71 per cent. In cumulative terms, the sector witnessed a contraction of 5.5 per cent.
The recent figures highlight a divergence from the GDP data which show industrial production is growing at a better pace than the IIP figures.
"The sharp uptick in growth of coal production and relatively moderate improvements in the performance of electricity and coal were inadequate to stem a decline in core sector growth in February 2015 compared with the previous month," said Aditi Nayar, senior economist at ICRA Ltd.
"Lead indicators for IIP growth for February 2015 remain bleak, such as the muted growth of core sector output and automobile production as well as the y-o-y contraction in merchandise exports. However, the impact of the same on IIP growth in February 2015 may be tempered by a favourable base effect (2.0 per cent contraction in the IIP Index in February 2014)," she added.
The government would release IIP figures for March on April 10, 2015.
(Edited by Joby Puthuparampil Johnson)