Core sector grows slowest in 5 months at 5.2% in April

NEW DELHI: The output of six infrastructure industries in April rose at its slowest pace in five months and a measure of manufacturing activity for May dropped, signaling further moderation in economic activity. The two sets of data, released on Wednesday, came a day after government reported a five-quarter low GDP growth in January-March.

The output of crude oil, petroleum refinery products, coal, electricity, cement, finished (carbon) steel grew 5.2% in April, industry ministry data showed. The six core industries, which have a combined weight of 26.7% in the index of industrial production, or IIP, are considered a good lead indicator of industrial activity.

"Going by the multiple data, there is reason to believe that growth is moderating along expected lines," said Rupa Rege Nitsure, chief economist, Bank of Baroda.

Tuesday's GDP data showed that gross fixed capital formation grew only 0.4% in the March ended quarter from a year ago, creating concern that the investments were stalling.

Crisil India chief economist DK Joshi said, "Weaker core sector data will pull down IIP growth. The core sector performance is lagging behind overall economic activity, resulting in supply constraints in terms of infrastructure bottlenecks."

Industrial production growth has fallen from 11.8% in the first quarter to 5% in the last quarter of FY11.

At 7.4%, core sector output had expanded faster in March. The decline in April was largely due to a moderation in cement output growth to 1.1% as against 8.8 % in the same year-ago period. Finished steel production growth also decelerated to 4.3% as against 12.9% last year. Coal production grew only 2.9% in April even on the negative base in April 2010 when output had contracted 2.9%.

The HSBC Markit Purchasing Managers' Index, or PMI-based on a survey of around 500 companies-dropped to 57.5 in May from 58 a month ago. A reading of over 50 shows expansion while below that indicates contraction.

"The momentum in the manufacturing sector eased in May as sequential growth in output and orders slowed a bit," said Leif Eskesen, chief economist for India & ASEAN at HSBC.

May's PMI decline was because of slower increase in new orders, both domestic and exports. New orders dropped 0.7 points to 62.4.

"This seems to be a short-term trend as a result of uncertainty in the global economy combined with the RBI's monetary policy. These issues will probably iron themselves out by the second half of this fiscal," said Deloitte Haskins & Sells director Anis Chakravarty.

Export growth has moderated to 34.4% in April after rising 43.8% in the previous month.

"We expect growth to moderate to 19% over the year," wrote Citi economist Rohini Malkani in a note after the PMI data was released on Wednesday. Manufacturing output growth has dropped to 5.5% in April-March 2011 quarter from 15.2% in the year-ago period. "Following the Quarter 4, FY11 GDP print of 7.8%, we maintain our view that FY12 will likely be a year of two halves, with H1 GDP in the 7.5-7.8% YoY range; and H2 GDP in the 8.2-8.5% range," said Malkani.