The core sector of industries grew at the rate of 6.7 percent year-on-year in June riding on increased production of refinery products, coal, and cement. In the April-June 2018-19 period, core sector production increased by 5.2 percent over the corresponding period of the previous year. The eight core industries of the country are Electricity, steel, refinery products, crude oil, coal, cement, natural gas, and fertilizers. If the core industries grow at a good rate then they provide a support base for other industries to grow fast. The Index of Eight Core Industries is a monthly production index, which is also considered as a lead indicator of the monthly industrial performance. The eight core industries comprise 40.27 percent of the weight of items included in the Index of Industrial Production (IIP) and the higher number this month may reflect positively on the IIP figures as well. All India IIP is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period with respect to that in a chosen base period.
The Petroleum refinery production (weight of 28.04 percent) increased by 12 percent in June 2018 over June 2017. Cumulatively, production increased by 6.6 percent in the April-June, 2018-19 period over the corresponding period of the previous year. Coal production (weight of 10.33 percent) increased by 11.5 percent in June, while in the first quarter of the fiscal, its production increased by 13.2 percent compared to the April-June period of the previous fiscal. Cement production (weight of 5.37 percent) increased by 13.2 percent in June. Its cumulative index increased by 14.2 percent during April-June, 2018-19 over the corresponding period of the previous year. Electricity generation and steel production, both accounting for a total weight of over 37 percent, grew 4 percent and 4.4 percent respectively in June. In the first quarter of the fiscal, electricity generation and steel production increased 3.4 percent and 2.9 percent respectively. “Low base effect has worked this month as June was the period just before GST set in (last fiscal). These growth rates have to sustain in the coming months when the base effect will turn adverse as companies started the process of restocking following GST,” according to Madan Sabnavis, chief economist, Care Ratings.
Other core infrastructure sectors with higher production include steel, electricity, and fertilizers. The two sectors, where production fell are crude oil and natural gas. The reason behind the decrease in the production of crude oil and natural gas is probably the rise in the prices of these products in international markets. The increased prices are expected to take the consumption down and hence the production decreased. The prices of petroleum have been on the rise in recent months disturbing the macroeconomic stability enjoyed by the country since last few months. The rise in petroleum prices takes the import bills up which widen the current account deficit and fiscal consolidation. Although the prices of crude oil and natural gas are once again coming down due to production increase by Russia. The low petroleum prices are very important for the healthy economic growth of India because the increase in the prices reduces the consumption which ultimately affects GDP growth.
The healthy infrastructure sector growth is also due to increased public investment (Investment made by government) in the development of roads, highways, and ports. The Modi government has built 28,531 km of national highways in its four years since 2014-15, which is 73 percent more against the 16,505 km achieved by the Manmohan Singh government in four years till 2013-14. This government has been driven to increase the investment in infrastructure because the subsidies given on oil and gas have come to a new low due to lower fuel prices in last few years. India imports almost two-thirds of its crude oil requirements which makes a heavy dent on government coffers. The Modi government enjoyed the bonanza of lower oil prices in the international markets and lowered the subsidies on these ultimately freeing them from government control and linking to market prices. The money saved from subsidies was invested on infrastructure which is the need of the hour for the country. The Sagaramala project was launched to boost connectivity through the water. The project is a $130 billion initiative and aims to set up new mega ports, modernization of India’s existing ports, and development of 14 Coastal Employment Zones (CEZs).
So the government’s effort to boost the infrastructure is visible in healthy growth of refinery products, coal, and cement. But the growth could not be sustained through public investment so there is a need for an increase in private investment in these sectors. The second thing is the low oil price bonanza will not be always there to divert money from subsidies to infrastructure. So the growth in any sector needs to be sustained through private investment.
