The output growth of core-sector industries touched a four-month high of 3.2% in September from a year before, as electricity generation scaled a 11-month peak and fertiliser production surged to its highest since February 2010 aided by favourable bases.
According to the official data released on Monday, electricity generation grew 10.8% in September, compared with 5.6% in the previous month, while fertiliser output rose a whopping 18.1% in September, against 12.6% in August, helped by rise in demand ahead of the rabi sowing season. Power generation had expanded just 3.9% and fertiliser output had contracted 11.6% in September last year, which helped the calculation of growth for the relevant month this year.
However, steel output dropped 2.5% in September from a year earlier–the third straight month of fall–as construction activity remained tepid and the base, too, was relatively more unfavourable (It had grown 6.6% in September last year). Mirroring poor construction activity, even the cement sector output declined 1.5% in September from a year before, compared with a rise of 5.4% — a nine-month high — in August. A drawdown in inventory is expected to support some uptick in cement growth in the near future, said analysts.
Power generation also gained from a modest uptick in coal production (1.9% in September against 0.4% in the previous month) and the growth of thermal electricity generation rose sharply to 20% in September from 6% in August. However, hydro-electricity generation declined 24% in September, following the paltry 2% growth in August, suggested a drop in water reservoir levels and poor rainfall during the monsoon withdrawal. However, good thermal electricity production, in conjunction with its substantial contribution in the total power generation mix (84% in September), aided the growth of overall electricity generation in September, analysts said.
“The pickup in core sector growth in conjunction with inventory build-up ahead of the festive season should provide some sequential boost to output of manufactured goods, particularly consumer durables in September 2015. However, the sharp contraction in non-oil merchandise exports in September may exert some drag on IIP growth in that month,” said Aditi Nayar, senior economist at ICRA.
The growth of production of these eight core industries–coal, crude oil, natural gas, petroleum refinery products, fertilisers, steel, cement and electricity–with a combined weight of almost 38% in the index of industrial production (IIP) had hit an 18-month trough of -0.4% in April this year, having dropped from as high as 8.7% rise in June 2014. The core sector output during April-September period grew 2.3%, slower than 2.6% in the first half of the 2014-15 fiscal, showed the data.
Higher production in the core sector should help the IIP growth, even though a divergence between the two indexes still persists. While the IIP grew 34-month high of 6.4% in August, the core sector expanded just 2.6%.
Crude oil production dropped 0.1% in September, compared with 5.6% in the previous month, while coal output grew 1.9%, against 0.4% in August. Refinery products witnessed a marginal growth of 0.5% in September, compared with 5.8% in August, as some of the oil refineries, including the Vadinar unit of Essar Oil with a capacity of 20 million tonnes per annum, were shut for usual maintenance for some days. Natural gas production, which rose 3.7% in August after remaining in the negative territory in each month since November, 2010 (blame the precipitous decline in KGD6 output), grew 0.9% in September.