Core sector stagnates in January on oil, gas

Written by fe Bureau | New Delhi | Updated: Feb 29 2012, 07:46am hrs
Key infrastructure industries reported near-flat growth in January, in line with the slowdown in industrial growth in recent months and economists prediction that third-quarter GDP growth would be even lower than the previous quarters 6.9%.

The drop in natural gas output and the stagnant refinery sector were key reasons behind the dismal core sector performance.

Indias economy grew 7.7% in the April-June quarter and 6.9% in July-September. Growth in industrial production had halved in the third quarter compared with the previous quarter. A Reuters poll on Tuesday said the GDP would grow only 6.4% in the third quarter.

As per official data released on Tuesday, infrastructure sectors output grew 0.5% in January from a year earlier, the slowest since last October when it grew just 0.3%, and sharply lower than 4.6% in the previous month.

During the first 10 months of the current fiscal, output of these industries rose 4.1% compared with an annual rise of 5.7% a year ago.

The infrastructure sector accounts for 37.9% of industrial output.

In January, the maximum fall of 8.9% was recorded in natural gas sector, followed by refinery products at 4.6%, steel at 2.9% and crude oil at 2%. Cement witnessed an astounding growth of 10.6% during the month while coal production grew 7.5%. Fertiliser output grew 4% in the month and electricity production grew 2.4%.

Executives from the oil industry said crude oil production was below the target because of less-than-anticipated gains from ONGCs development wells at Mumbai High, while water and sand ingress in a few wells caused gas flow to cease in some fields of Reliance Industries in the Krishna-Godavari basin. Refinery throughput declined due to less crude availability as well as technical reasons.

Analysts said the slow expansion of output in infrastructure could have a negative impact on the broader industrial production for the month, and also reflect on overall economic growth. It is a mixed bag of positive and negative news. While it is heartening to see the growth in coal, electricity and cement, it is disconcerting that output of oil, gas and petroleum products has gone down. However, the fall in oil and gas is not a surprise, Feedback Infrastructure Services chairman Vinayak Chatterjee said.

Rajiv Kumar, an economist and secretary-general of industry body Ficci, said: The government must focus on strong and structural reform measures to prevent further deterioration.

The Prime Ministers Economic Advisory Council has pegged GDP growth at 7.1% in 2011-12, lower than the 8.5% recorded last year.

The Central Statistical Organisation has a more pessimistic projection of 6.9%. The economy grew 6.9% in third quarter of the year, the lowest in nine quarters.

The index of industrial production (IIP), which measures the change in factory output, had grown a sluggish 1.8% in December 2011 against 8.2% a year ago. The next set of numbers for IIP are scheduled for release on March 12. Infrastructure has a 37.9% weight in IIP.