India's core industry growth slumps to 3.5 percent in August

Cumulative growth of eight core industries that has a combined 37.90 percent weight in the Index of Industrial Production (IIP), declined to 5.3 percent in April-August period as compared to 6.1 percent during the same period last year, according to data released by the commerce and industry ministry.

Coal production, which has 4.38 percent weight in the IIP index, had a negative growth of 15.3 percent in August 2011 as compared to 1.0 percent growth in the same month last year. During April-August period, coal production had a negative growth rate of 2.4 percent against 0.6 percent growth during the same period of last year.

Among the eight core industries, only electricity generation (weight: 10.32 percent) registered an impressive growth of 8.9 percent in the month under review.

The cumulative growth of electricity generation during April-August period was 9.3 percent as compared to 4.5 percent during the same period in 2010-11.

Growth of steel production slumped to 7.7 percent in the month under review as compared to 10.8 percent during the same month last year, while growth in crude oil production fell to 1.6 percent in August as compared to 15.2 percent during the same month last year.

Natural gas production registered a negative growth of 5.3 percent as compared to 11.9 percent last year.

However, petroleum refinery production registered a growth of 3.9 percent in August 2011 as against a negative growth of 2.3 percent during the same month last year.
Decline in core industries growth is likely to further drag down the growth of overall industrial output.

The overall industrial output growth slumped to 3.3 percent in July, the lowest in 21 months.

Industrial growth has slumped in the recent months due to an aggressive monetary tightening by the central bank.  

The Reserve Bank of India (RBI) early this month hiked key rates by 25 basis points in the 12th such exercise since January 2010 to tame stubborn inflation.

This has made the cost of capital expensive, dampening industrial output growth.