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Core Infrastructure Still in a Rut

Core infrastructure, which constitutes around 38 per cent of the IIP, slipped from 1.8 per cent to 1.4 per cent in Feb 2015. That's a 17-month low

The market, the people and the country - all have been hoping for a quick turnaround in the economy. Now close to a year after the new government took office, the core economy has still not turned around. Core infrastructure, which constitutes around 38 per cent of the Index of Industrial Production (IIP), slipped from 1.8 per cent in January this year to 1.4 per cent in February 2015. That's a 17-month low.

What's more, out of the eight core sectors, only three registered growth. These were: coal, which was up 11.7 per cent (over January this year); electricity, which came in second with a growth of 5.2 per cent; and cement, which grew by 2.6 per cent.

The remaining five sectors that did not show any growth were led by natural gas, which saw the maximum contraction of 8.1 per cent; steel, which fell by 4.3 per cent; and refineries and fertilisers. Refineries fell after three successive months of contraction to land in the negative growth territory. Natural gas has been the worst performer even on a 12-month basis, followed by crude oil and fertilizers, both of which showed negative growth.

Outlook
Coal is expected to maintain its growth momentum, given that there has been some movement with the allocations. Electricity, which has shown months of strong momentum, could take a breather while cement could continue to outperform, given the government's initiatives to fuel an infrastructure-led recovery in the economy.

Proponents of an improvement in the economy ahead point out to the government's initiatives to get stalled projects on stream and the RBI's nudge to banks to lower rates, which is expected to fire up industrial credit. However, with industry not resorting to credit, a significant turnaround could be some time away. Data released by the RBI shows that for the fortnight ended March 6, 2015, credit offtake grew only 10.19 per cent. The country's largest banker, State Bank of India, too sees credit growth of 10 per cent this fiscal. How the government moves ahead to remove other bottlenecks in infrastructure development and ease of doing business will determine how industry and the core economy shape up for the remainder of the current year.

Core Infrastructure Still in a Rut