Core sector output up 3.2% in Aug due to Cement, Steel

The output by the core sector of the country rose by 3.2 per cent in the month of August as a result of a sharp rise in steel production and a sudden pickup in cement sector, suggesting a lift in infrastructure as well as all the construction activities in the country. The market experts gave a positive outlook to this change. They said the data was positive but not vigorous enough to suggest a dynamic revival in any activity of the industry.

Steel production witnessed a rise of 17 per cent to a high never seen in 37-month, aided by the low base of previous year, while cement industry output saw a rise of 3.1 per cent compared with a 1.4 per cent rise in the month of July, data released by the commerce department said. July core sector growth was revised down to 3 per cent from the 3.2 per cent according to the initial estimate.

The index measures output in eight of the infrastructure sectors – steel, cement, coal, refining, natural gas, crude oil, fertilisers as well as electricity generation. It holds a 38 per cent weight in the Index of Industrial Production (IIP) along with the latest data suggest an improvement, albeit muted, over July’s 2.4 per cent contraction. August IIP data will be released on 12th October 2016.

According to Aditi Nayar, vice president and senior economist at ICRA, with a minor uptick in the growth of the core sector, a turnaround in the performance of non-oil merchandise exports, and the sharply higher expansion in auto production, the performance of the IIP in the month of August 2016 may improve from the dismal contraction seen in July of 2016.

The period between April-August core sector growths was 4.5 per cent compared with 2.4 per cent in Financial Year 2016. This data will be among the inputs weighed by the monetary policy committee, MPC, as it decides on whether to go for cut in the interest rates to try as well as boost growth or maintain status quo at the October 4 review. The big positive in the data was observed in the cement and steel sectors that suggests progress is being made.

Coal, crude oil as well as natural gas were the three sectors where production fell — by 9.2 per cent, 3.9 per cent and 5.7 per cent, respectively. Refinery output rose 3.5 per cent but was much lower than 13.7 per cent in July.

Fertilizer output picked up momentum in August at 5.7 per cent from a 4.3 per cent decline in July. Electricity production grew a meagre 0.1 per cent, its slowest in nine months due to the contraction in thermal power.