Core sector scores 6.6 percent growth rate

Clocking a six-month high growth rate, core sector riding high on the back of impressive performance by steel and refinery products, recorded a 6.6 percent rise in October indicating sharp spurt in industrial activity before the demonetization drive, according to data released by the government. The index was up 3.8 percent in October 2015 and 5% in September this year. Eight infrastructure sectors including coal, crude oil, natural gas, refinery products, fertilisers, steel, cement, and electricity, have a 38% weight in the Index of Industrial Production. The core sector expanded 4.9 percent in the April-October period, compared with 2.8 percent a year earlier, and steel production jumped 16.9% in October as against a sharp shrunk of 5.5 percent in the year’s earlier period. In the process, domestic demand for steel may falter post-demonetisation, casting doubts on the persistence of the double-digit growth of steel production.

However, buoyant international prices may support exports, providing a cushion to steel production, said principal economist at ratings firm ICRA, Aditi Nayar. The output of refinery products soared 15.1% in October as the sector had declined 4.4 perecnt in October last year. Cement output rose 6.2 percent, but demand may experience a temporary dip post-demonetization, which would also affect the pace of core sector growth. Similarly, growth in fertilizer and electricity generation was 0.8 percent and 2.8 percent, respectively, against 16.8% and 13.8%, in October 2015. In contrast, coal production fell 1.6 percent as against growth of 6.6 percent a year, earlier. With reservoir storage significantly higher than year-ago levels, hydroelectricity generation is likely to continue to record healthy growth in the coming months, reducing the demand for thermal electricity, Nayar added.