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The composite production index of six core industries with a
combined weight of 26.7 per cent in the broader Index of Industrial
Production (IIP) increased by 3.4 per cent in June, sliding
from 7.3 per cent in March, 5.4 per cent in April and 5 per cent in
May. Of the six industries, only petroleum crude and downstream
petroleum refineries, which were under-performers till recently,
turned out improved performance. Crude oil production increased
6.8 per cent, improving from 5.8 per cent in May, 5.2 per cent in April
and 3.7 per cent average in February-March. Petroleum refinery output,
though slowing to 2.9 per cent, from 7.7 per cent in May and 5.3
per cent in April, was against decline in Q1 of the last fiscal.
However, the remaining four industries which account for more
than three-fourths of the composite index of infrastructure industries
turned weaker. The growth rate in electricity dropped to 3.4 per
cent, from 6.4 per cent in May, 6.9 per cent in April and 7.5 per cent
in February-March. Coal production stagnated for the second
month, after a decline in April. The production, which had increased
at an average of 8 per cent in the last two fiscals, apparently lost
steam. The story is the same in case of cement whose growth rate
faltered to 3.6 per cent, from 8.6 per cent in the preceding two
months and 12.7 per cent during the month a year ago. While finished
steel (carbon) production expanded 3.5 per cent against 2.5
per cent in May, the commodity has recently seen swings in growth
rates in alternating months.
Although the cumulative growth of 4.6 per cent in Q1 in the composite
index is slightly better than 4.3 per cent a year ago, the feat raises
concerns as the drop in the growth rate to 3.4 per cent in June, apart
from being indicative of a slide from the previous months, needs to be
appraised against 6.3 per cent in this month last year, which had heralded
the onset of recovery in industrial production. Now, with low base
effects wearing out the feat in coming months would have to contend
with stronger base effects. If current conditions continue, the rates of
expansion in infrastructure industries would tend to be rather subdued
in coming months of the current fiscal.
The six infrastructure industries constitute the growth drivers for
industrial production. The slowdown, particularly in electricity in
June along with lower power deficit of 9.4 per cent, could point to
slower pace during the month in broader IIP, when viewed also
against the recovery proclaiming 8.3 per cent in June last year.
As a result, overall, growth rates in industrial production are likely
to be restrained in coming months, other things remaining same. We
have been underlining that recent growth rates mark a recovery and
not a return to growth phase and we should not be foxed by rapidity.
Sadly, the first month of the change in phase does not inspire confidence
of a quicker return to this stage. Here, the halfhearted
attempts by RBI tinkering with repo/reverse rates as part of monetary
tightening to fight inflation in the Q1 policy review also reflects
its uneasy posture on direction and pace of industry expansion.
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