Core sector growth down to 2.3% in September

The main reason,experts say,for the decline in coal production and natural gas are long term policy issues.

The eight core infrastructure industries growth slowed down to 2.3 per cent for September as against 3.3 per cent during the same period a year ago,mainly due to rising cost of credit and inputs and weak demand.

While coal production contracted by 17.8 per cent as against a contraction of 1.8 per cent in September 2010,natural gas production declined by 6.4 per cent during the month as against expansion of 12.6 per cent during the year ago period. Fertilisers were down 2.1 per cent,according to official data released today. Production in both the steel and cement sectors also grew at a slower pace at 6.6 per cent and 0.9 per cent as against 11.7 per cent and 5.2 per cent during the same period last year.

The main reason,experts say,for the decline in coal production and natural gas are long term policy issues.

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Natural gas and coal have long term problems. Coal supply has been constrained due to go,no-go policy of the government. As regard steel and cement,construction activity as been down. Construction has been the weakest component of the GDP. There could be a seasonal element in the cement as the rains have carried on a little longer, Abheek Barua,chief economist,HDFC Bank,said. This may not augur well for the Index of Industrial Production (IIP) as eight core sector industries coal,crude oil,natural gas,fertilisers,electricity,cement,steel,refinery products have a share of 37.90 per cent in the IIP. Barua said that IIP for September will not be more than 4-5 per cent as core sector has a huge share in the index. The eight key infrastructure industries grew by 3.7 per cent in August.

During the first half of the current fiscal (April-September),these key industries expanded by 4.9 per cent as against 5.6 per cent during the corresponding period last year.

During the month,electricity generation grew by 8.9 per cent generation while refinery products posted a growth of 4.4 per cent during the month.

The core sector growth has been hit by rising cost of credit as the central bank has been making money expensive by raising key interest rates 13 times since March 2010 to contain inflation.