NEW DELHI (TIP): There was no respite from sluggish data in 2013. Two sets of data released on December 31, the last day of 2013, showed the health of the economy still remained fragile. During April-November, the fiscal deficit was estimated at nearly Rs 5.1 lakh crore, or 94% of the full-year, estimate of Rs 5.42 lakh crore as revenues remained sluggish and total spending touched 61% of the budget estimate of Rs 16.6 lakh crore. Separate data showed the core sector grew 1.7% in November 2013 compared to an expansion of 5.8% in the year earlier period.
The November data showed some signs of improvement from the previous month when the sector had contracted 0.6%. The core sector accounts for nearly 38% of the index of industrial production and any sign of improvement in this vital segment augurs well for industrial output. Factory output had contracted 1.8% in October while retail inflation shot up above 11% in November, raising fresh doubts about the health of the economy.
“The sub-2% core sector growth combined with the moderation in the growth of merchandise exports, prevailing issues in the sugar and gems and jewellery sectors, and an uneven uptick in domestic consumption led by rural demand, suggest that industrial growth remained muted in November 2013,” ICRA economist Aditi Nayar said in a statement. But economists cautioned that fiscal situation was a bigger concern. “It will be difficult to meet the target on a business as usual basis,” said D K Joshi, chief economist at ratings agency Crisil.
“The government will have to resort to expenditure cuts, rollover expenditure to next year and speed up divestments and finally they will have to dig into dividends from public sector units to keep the fiscal deficit within the target of 4.8% of gross domestic product,” said Joshi. Finance minister P Chidambaram has said the government will not breach the red line on the fiscal deficit and will keep it within the target of 4.8% of GDP. The core sector, which spans coal, steel, cement, fertilizers, crude oil, natural gas, petroleum refinery products and electricity, has remained volatile in the past few months making it difficult to derive a trend.
But overall, the industrial sector has remained under stress, hit by stubborn inflation, high interest rates, high input costs and rising wage pressures. Investment has remained sluggish as demand remains muted. Economic growth slowed to a decade low of 5% in 2012-13 and is expected to be on similar lines in the current fiscal year. Two sectors, natural gas and petroleum refinery products, remained laggards. Coal production grew by 2.3% in November from a year earlier, crude oil production increased by 1.1% in November.
Natural Gas production declined by 11.3% in November compared to contraction of 15.1% in November, 2012. Petroleum refinery products fell 5% in November compared with a growth of 29.9% in the year earlier month. Fertilizer production posted a growth of 0.6% while steel production recorded a growth of 3.9%. Cement production rose 4.2% in November compared to a decline of 0.2% in November 2012. Electricity generation increased by 5.9% in November compared with a growth 2.9% in the year earlier month.