Robust core sector show in August brightens industrial growth picture

NEW DELHI: The output of eight core industries rose at its fastest pace in seven months in August, suggesting the industrial pick-up seen in July may sustain in the coming months.


These eight industries have a 38% weight in the Index of Industrial Production ( IIP), the primary gauge of industrial activity in India.

The output of eight core industries rose 3.7% in August, highest pace since January and higher than 3.1% rise in July but below 6.1% in August last year, data released by commerce and industry ministry on Monday showed. In April-August the core sector growth was 2.6% against 6.3% in the same period last fiscal.

The eight core sector industries are coal, electricity, steel, cement, fertilisers, crude oil, and natural gas and refinery products. The higher core sector growth adds to the clutch of positive news flow in the last month or so, suggesting that the economy may be bottoming out slowly from the decade low 5% growth touched last fiscal. Industrial production rose 2.6% in July while exports have grown at double digit pace in July and August, helping bring down the trade deficit to around $12 billion a month from about $17 billion a month in the first quarter.

The high weight of core sector in IIP makes it a good lead indicator of the industrial activity in India. IIP numbers for August will be released on Friday October 11. “The core sector data will give cushion to the industrial growth; however, it is not sustainable hereon.

I do see the trend to be mildly positive” DK Joshi, chief economist, CRISIL said, The rebound in core output is driven by higher coal output, which rose at a 10-month high, and pick in production of cement, steel and electricity, suggesting a revival in construction and manufacturing activity.

Steel production was up 4.3% in August, cement 5.5%, and coal 5.5% while electricity rose 6.7%. The growth was dragged down by a 16.1% decline in output of natural gas because of the fall in production from KG-6 fields and 1.5% lower crude production.