The combined index of eight core industries stood at 125.8 in February 2019, which indicates a marginal increase of 2.1 per cent during the month. The eight core industries, including coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity, are responsible for almost 41 per cent of the weight of items included in the Index of Industrial Production (IIP). The dismal show in February was on account of fall in output registered in the crude oil and refinery products.
During February 2019, production of crude oil and refinery products fell by 6.1 per cent, and 0.8 per cent, respectively. This countered the growth in other sectors, which was not much to begin with.
Growth rate of production in fertiliser, steel, natural gas and electricity industries were reported to be 2.5 per cent, 4.9 per cent, 3.8 per cent and 0.7 per cent respectively in February 2019. The same figures for the corresponding month of 2018 were 5.2 per cent, 5 per cent, (-) 1.8 per cent and 4.6 per cent, respectively.
The highest output growth during February 2019 was registered in coal and cement sectors at 7.3 per cent and 8 per cent, respectively.
"Cement has shown sustained and strong monthly growth FY19. The other segments that come somewhat close to cement in terms of monthly performance are coal, steel and electricity," said Sunil Kumar Sinha, Director - Public Finance and Principal Economist, India Ratings and Research (Ind-Ra), Fitch Group.
"However, electricity output has witnessed significant weakness in 2019 by growing at 0.8 per cent and 0.7 per cent in the month of January and February. Ind-Ra believes the performance of steel (long products) and cement has performed well on account of the focus on affordable housing followed by road construction. Flat steel products have been adversely impacted by the slowdown in the auto sector," Sinha added.
Moreover, in the course of last one year, the highest rate of growth registered by the core industries was 7.8 per cent in June 2018. Since then, the index of eight core sectors has recorded a low single-digit growth rate, indicating weakness in industrial growth. An average IIP growth of 4.4 per cent for the April-Jan period in FY19 as compared with 4.1 per cent during the same period in FY18 is a testimony to this, Sinha said. Slow rate of growth in core sectors in February is once again expected to affect the IIP numbers.
"India Ratings therefore believes that under the current growth inflation dynamics some room is available for RBI to go for a 25 basis points cut in the policy rate in the First Bi-monthly Monetary Policy Statement for FY20. India Ratings and Research further expects the policy stance of RBI to change from neutral to accommodative," Sinha stated.