Growth of six infrastructure industries dipped to an 18-month low of 2.5 per cent in September, prompting experts to say that industrial expansion will also be adversely impacted.
The expansion of core industries slowed down primarily due to a dip in petroleum refinery and coal output.
Analysts said the slower pace poses a dilemma for the Reserve Bank, which is slated to conduct its quarterly monetary policy review next week.
The core industries -- crude oil, petroleum refinery products, coal, electricity, cement and finished steel -- had expanded by 4.3 per cent in September, 2009.
Growth in the segment, which has 27 per cent weightage in the country’s total industrial output, was 4 per cent in the first six months of the 2010-11 fiscal, as against 4.5 per cent in the same period last year.
Growth of these industries fell into the negative zone after the global financial crisis hit the country in October, 2008. Subsequently, growth picked up again in April, 2009.
However, it fell to its lowest level since then in September, 2010.
“Now it is sure that IIP will not be in double digits,” Crisil Principal Economist D K Joshi said.
An economist at a leading private sector bank said, “The low core sector output growth might prompt the RBI to have a rethink on its policy rate hike decision.”
It is widely anticipated the RBI will hike policy rates by 25 bps on Tuesday to tame inflation, even as food inflation declined to 13.75 per cent for the week ended October 16 from 15.53 per cent in the previous week.
Axis Bank Chief Economist Saugata Bhattacharya said the September IIP could be low.
“Unless the basic goods components of IIP perform well, the factory output numbers could be lower,” Bhattacharya said.
The index of industrial production (IIP) for September is likely to be released on November 12. The IIP in August was 5.6 per cent, as against 10.6 per cent in the same period of 2009.
As per industry department data, petroleum refinery production and coal output contracted by 10.2 per cent and 2 per cent, respectively, in September against growth of 3.4 per cent and 6.5 per cent last year.
Despite a good monsoon, electricity generation also slowed to 1.3 per cent from 7.4 per cent in the year—ago period.
“Production in the petroleum refinery segment was affected as several refineries were closed on account of their annual maintenance and other reasons,” a ministry official said.
Joshi said electricity generation was affected due to the contraction in coal production. Thermal and nuclear units generate about 80 per cent of the country’s electricity.
However, crude oil production registered a robust expansion of 12.5 per cent in September. It had contracted by 0.5 per cent in September, 2009.
Similarly, finished steel saw significant annualised growth of 5.8 per cent in September, as against 0.8 per cent expansion in the corresponding month of the previous year.
As per the data, cement production grew by 5.2 per cent in September, 2010, from 6.5 per cent in September 2009.
During the April-September period, crude oil, petroleum refinery products and cement production registered a growth of 10.2 per cent, 2.6 per cent and 4.7 per cent, respectively.
Growth in crude oil and refinery products output also contracted in the same period last year, though cement output was up by 12.3 per cent during April-September, 2009-10.
As per the data, growth in coal output during the first six months of the fiscal slowed to 0.4 per cent from 11.6 per cent in the year-ago period. Similarly, growth in electricity generation slowed to 4 per cent from 6.4 per cent in April-September, 2009-10.
However, finished steel output growth was higher at 3.9 per cent in the first half of the current financial year, as against 1.7 per cent in the corresponding period last year.