Core grows 4.5% in February

Six core industries that account for more than 26% of the country’s industrial output expanded 4.5% in February, the slowest pace in the last four months. In fact, poor core sector growth could also reflect in the country’s industrial growth, which has been showing double digit increases since October 2009. Economists said the fall was triggered by an unexpected decline in steel production. “A sharp fall in steel production does not gel with the recovery story that is playing out in the country,” said DK Joshi, principal economist at credit ratings agency Crisil. “We can expect an upward adjustment in steel production data,” he said. Steel is a key input in construction and automobile industry, industries that are leading the revival in economic activity. Core sector comprises crude oil, petroleum refinery products, coal, electricity, cement and finished steel. The slowdown in production of cement, another indicator of the strength of economic activity, could also be a suggestion that the growth story is beginning to lose momentum due to inflation. High inflation has the potential to derail growth by undermining the investor sentiment and increasing risk perception. Annual wholesale price inflation for February stood at 9.6%. Even if February IIP growth figures fall to single digit levels, the Reserve Bank of India is likely to raise interest rates in the monetary policy review on April 20. Economists say even with a 25-50 basis points (one basis point is one hundredth of a percentage point) hike in the key policy rates in the April review, the economy can clock high growth rate.