India's core sector grows 4.2pc

India's core sector grew 4.2 per cent on year in December, after expanding just 3.3 per cent a month earlier, as cement and steel demand got a boost from a pick-up in construction activity in Asia's third-largest economy.

Government data showed the rise was lower than the 5.1 per cent growth seen in December 2001, but economists said it was no surprise after last year's poor monsoon, which led to India's worst drought in 15 years.

"The growth number is lower than last year's, but still robust, and continues to support the view that the economic recovery is on," said Dhananjay Sinha, analyst with Bombay-based JM Morgan Stanley.

"Sectors such as coal, steel and cement have been backing the improved economic numbers over the entire fiscal year."

The infrastructure sector accounts for more than a quarter of India's industrial output, often serving as an advance indicator of industrial growth.

It grew 5.4 per cent between April and December, up from 2.5 per cent a year earlier.

Indeed, analysts said other data showed the economy was faring well.

India's tax collections, which reflect economic activity, grew 17 per cent in the first nine months of the fiscal year to March 2003.

The government expects the economy to grow by just five to 5.5 per cent this fiscal year due to a likely drop in farm sector output, but that will still put India in the league of the world's fastest-growing economies.

A Reuters poll of 12 economists, released earlier this month, estimated GDP would growth five per cent.

"We expect the impact of the poor monsoons to be temporary and industrial performance to improve on the back of easier money conditions and an improvement in the global economic scenario," said Sanjeet Singh, analyst with ICICI Securities and Finance Co.

The cement sector, which has fuelled growth in previous months, grew 16.2 per cent in December, compared with a rise of 13.2 per cent in the same month in 2001.

The steel sector grew 7.5 per cent in December, against 7.4 per cent the preceding year.

"These figures suggest that there is strong growth in housing and construction,... that a lot of infrastructure and construction activity is happening," Sinha said.

Construction activity in the world's 12-largest economy has been on the rise due to cheaper loans, falling real estate prices and tax breaks for the housing sector.

Interest rates have been on the decline after the central bank cut the benchmark bank rate in October-end to a 29-year-low of 6.25 per cent to insulate the economy from the drought.

India's ambitious highway project to link the four corners of the country has boosted demand for steel and cement, analysts said.

The laggard was the electricity sector, which has a near 40 per cent weightage in the infrastructure index. It grew just 2.5 per cent in December, compared with 4.1 per cent in the year-ago period.

The petroleum refining sector actually shrunk 7.1 per cent in December, compared with growth of 9.1 per cent in the same month of 2001 while the crude oil sector grew 1.2 per cent, after constructing 1.2 per cent in the same month the preceding year.