Core Sector Grows 7.6% in March, up 5.9% in FY11

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The output of the six infrastructure industries expanded at its fastest rate in five months to March while manufacturing showed signs of pick up in April, together indicating a possible rebound in industrial production.

The firm 7.6% rise in the index for infrastructure industries in March comes a day before the Reserve Bank of India, or RBI, considers its monetary policy for the year.

Manufacturing has picked up pace in April, a private survey showed on Monday. The central bank needs to lift rates to check the rate of price rise that surprisingly accelerated to 9%, but low single digit industrial growth had made sharp rate increase difficult.

Most economists expect the central bank to lift rates by 25 basis point, but a sharper 50 basis point increase is not ruled out.

"While the base case is that of the RBI hiking by 75bps-100bps during the year, the debate now is whether the RBI hikes by 25bps or 50bps on May 3," Citi economist Rohini Malkani wrote in a note last week.

The six infrastructure industries - crude oil, petroleum refinery prod-ucts, coal, electricity, cement and finished steel - have a 26.7% weight in the index for industrial production.

A pick up in growth suggests a possible recovery in the overall indus-trial growth in March.

In the fiscal 2010-11, the out put of the six infrastructure industries was up 5.9%, against 5.5% in the previous year, the data released on Mon-day showed.

"There is some momentum in the core industries going forward," said Saugato Bhattacharya, senior vice president and economist, Axis Bank .

HSBC Markit purchasing managers' index, or PMI, rose to 58.0 in April from 57.9 in March, data released on Monday showed. A reading above 50 indicates expansion.

"The number confirm that growth is not a concern and that the RBI can continue its tightening cycle uninterrupted," said Leif Eskesen, chief economist for India and ASEAN at HSBC.

Other economists were not sure the core sector data would alter the RBI's view of things.

The higher growth in March was partly because of the 12.1% rise in production of crude and a 7.6% increase in electricity generation.

"There are not many positive signals from the data," said DK Joshi, chief economist, Crisil.

The growth this year was supported by power production, the prospects of which were not looking good, he said.

Coal production contracted 1.2% in March and did not show any in-crease in 2010-11. Thermal power plants account for close to 70% of electricity production in India.

The production of crude and steel, the key items that could give an idea about the economic activity, are also giving conflicting signal, specially about the construction sector.

Cement output rose 6.5% in March 2011, against 7.8% in March the year before. Steel production was up 9.9% in the March this, up from 7.7% the year before.

Madan Sabnavis, chief economist, CARE, a ratings agency, pointed to the divergence in industrial growth and core sector expansion.

"There seems to be a severing of the link between growth in the core and IIP," he said.

Though IIP and core sector tend to move in tandem, the infrastructure sector tends to have lower expansion than headline industrial growth.


The Economic Times, May 03, 2011