28.12.09

Core industries grow 5.3% in November

The six core industries grew at a three-month high annual rate of 5.3% in November, suggesting a possibly higher overall industrial growth for the month as these key infrastructure industries have a significant weight in the index for industrial production (IIP). The growth is, however, partly overstated because of the base effect. Core sector, comprising six infrastructure industries crude oil, refining, coal, electricity, cement, and steel had grown at 0.8% in November 2008. According to D K Joshi, principal economist at credit ratings agency CRISIL, the strength of the turn around could not be assessed now. “There is too much of noise in the system and I will wait for the third quarter economic growth figure before taking a call on the strength of the recovery,” said Mr Joshi. Out of the six-core industries crude oil production was the only segment that clocked a negative growth in the month. Analysts attributed this fall in crude oil production to steady fall in productivity of oil wells due to aging. Petroleum refining showed a spurt in production as the domestic refineries stepped up production to meet the rising demand in local and overseas markets. The International Energy Agency has already raised its oil demand growth forecast for next calendar year saying that there will be an increase in fuel consumption driven by countries such as India and China and also by the developed economies of the West. Cement production and finished steel production also posted high growth rates suggesting that the government stimulus measures are showing effect. Some analysts, however, are of the opinion that if the stimulus measures are withdrawn, the growth rate will falter. “The deceleration in GDP growth excluding government consumption and continued deceleration in investment growth clearly indicate it is the stimulus which is propping up growth,” Mumbai-based brokerage house Anand Rathi Financial Services pointed out in a recent research note. The coal production in the country has been falling steadily for three straight months. The standing committee on coal and steel recently said that it is “shocked” to find that inordinate delays in forest and environmental clearances besides land acquisition are hindering the country’s coal production target and about 100 coal projects have failed to take off. Analysts are of opinion that the fall in coal production is getting reflected in the electricity generation. Coal based electricity generation account for more than 50% of country’s electricity generation.

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