India's infrastructure sectors clocked their highest growth in 16 months in March 2016, with the index for core industries climbing 6.4 per cent, buoyed by a sharp uptick in the output of cement, electricity, fertilisers and refinery products.
The advance in the index in March followed a growth of 5.7 per cent in February, leading economists to cautiously consider it a sign of likely recovery in the economy.
Wait and watch“One should wait for a couple of months to see if this is a sustained trend,” D.K. Srivastava, Chief Policy Advisor at EY told The Hindu . “This is clearly a sign of recovery setting in the economy. The reforms that took place in both coal and power sectors will start to bear fruit now,” he added.
The fertiliser sector grew at 23 per cent in March 2016, up from 16.3 per cent in February. The cement sector saw a growth of 11.9 per cent in March 2016, slower than the 13.5 per cent it saw in February. The electricity sector grew at 11.3 per cent in March 2016, significantly faster than the 9.2 per cent seen in February.
“The pickup in the cement and refinery products sectors implies demand is picking up,” Mr. Srivastava said. “This is possibly (due to the) infrastructure demand being pushed by the Central government.
This shows that the government’s support for developing infrastructure is finally kicking in.”
Others, however, were not so optimistic, pointing to the poor performance of the Manufacturing Purchasing Managers’ Index (PMI) in April as being inconsistent with the seemingly sustained growth in the core sectors.
PMI in manufacturing“It is unusual that the core sector numbers are up, but PMI in manufacturing has gone down,” Rajiv Kumar, Senior Fellow at the Centre for Policy Research said. “The data is most unreliable, there is no consistency.”
“Even this growth, of 6.4 per cent, is not very strong, historically. The growth should be in the double digits. But it is showing a pickup, and this is good news,” he added.
Growth in the coal sector slowed to 1.7 per cent in March compared to 3.8 per cent in February, while the crude oil sector contracted sharply by 5.1 per cent in March compared to a growth of 0.8 per cent in February.
“These numbers are throwing up results that are not in tune with what is happening in the economy,” K Ravichandran, Senior Vice President and Co-Head, Corporate Sector Rating at ICRA said. “So, one can’t say conclusively that the economy is on the mend. Investment is happening, activity is happening on government-led capital expenditure (capex) in road, rail and defence. But private capex is not really happening.”
Another reason why the jubilation over a recovery might be premature is that the strong growth in March 2016 could likely be a result of a base effect brought on by the contraction seen in the index in March 2015. The index of eight core industries contracted 0.7 per cent in March 2015.
“This data needs to be seen keeping the base effect in sight,” Mr. Kumar said. “To get a more accurate picture, we need to compare March 2016 with March 2014.”
This comparison shows that the index grew 5.6 per cent in March 2016 over its level two years previously.
