Infrastructure growth plunges to 2.3% in Aug

High interest rates and credit crunch in overseas and domestic market has adversely impacted the infrastructure sector growth that plunged to 2.3% in August 2008, sharply down from 9.5% in the same month last year.

Growth rate in all the six core sectors has faltered with the crude oil witnessing a negative growth. The paltry growth in the infrastructure sector, which has a 26.68% weight in the index of industrial production, pulled the industrial growth down to a 10 year low of 1.3% on August 2008.

Crude oil showed negative growth by 1% in August from a positive 6.5% in the same month last year.

Growth in petroleum refinery products dropped to 2.5% from 8.2%, while expansion in electricity generation was down to just 0.8% from a healthy 9.2% last year. ?It?s still unclear why the crude output is falling,? says Axis Bank economist Saugata Bhattacharya. The paucity of oil has probably affected electricity generation that ?has completely collapsed?, he said.

For the April-August period also, the six core sectors comprising crude oil, petroleum refinery products, coal, electricity, cement and finished carbon steel showed a slower growth of 3.4% as against 7.1% in the corresponding period of 2007, according to government data released on Friday.

The cement sector declined to 1.9% against 16.75 in August 2007, while coal output dropped to 5.9% compared with 8% in the corresponding year. Finished (carbon) steel growth also declined to 4.4% in August, from 9.6 per cent in the same month last year.

For the April-August period of 2008-09, crude oil production registered a negative growth of 0.95, against 1% during the same period last year, while petroleum refinery products dropped to 4.8% from a healthy 10.4% in the same period last year.

Coal production registered a growth of 7.3% against 2.1% in April-August 2007-08. Electricity generation posted a growth of 2.2%, down from 8.3% last year. While cement production in the first five months of the current fiscal declined to 5.7%, compared with 9.3% during the same period last year. Finished steel production registered a growth of 3.95, down from 7.4% a year ago.

Analysts say that declining industrial and infra sector growth would prompt the RBI to ease liquidity conditions. What could also aid the central bank in further easing the monetary policy is the moderation in the inflation rate. Increased borrowings cost have not only impacted consumer demand but also capacity installation and future investments.