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Millennium Post

Amidst industry and core sector gloom

Four months of the current financial year had already gone. Yet, there is little to cheer about the performance of the country’s industrial sector, barring public sector NTPC-led electricity generation activity. Industrial production increased 0.3 per cent in June after having been unchanged in May. For the first quarter as a whole, industrial production moved up at an annual rate of 0.6 per cent. In June, manufacturing production rose 0.3 per cent following an increase of 0.2 per cent in May.

The manufacturing activity slipped in July as output fell and order flows weakened, indicating a broad stagnation in the sector. Even the servicesector activity had slowed down as new business flows moderated, making economic growth prospects less optimistic about the year ahead. The fresh order book situation with private sector firms as well as some of the top engineering PSUs is the weakest since 2009. Slower manufacturing activity is more to do with lower demand for goods and services and continuing import dumping. The power generation industry is spared because electricity demand has always been outstripping its supplies. Its performance would have been even much better if domestic coal and natural gas production did not slip.

The core sector, comprising eight key industries such as coal, crude oil, natural gas, refinery output, fertiliser, steel, cement and electricity, combining 37.90 per cent weight in the index of industrial production (IIP), grew at a snail’s pace of 1.6 per cent at the end of the first quarter (Q1) of the current financial year (FY14). The performance of the core sector is a key benchmark indicator for measuring the business and economic conditions in any given economy. The worst performers were coal, crude oil and natural gas in the indigenous energy group with combined weight of 11.31 per cent.

The group showed nearly a 20 per cent drop in output. Its poor performance pulled down the growth of the entire core sector, which, in turn, partly affected the output of the industrial sector, in general, and the overall business activity. Coal output during the April-June quarter was down 1.1 per cent. Natural gas production fell by 17.6 per cent. Crude oil output moderated by 1.4 per cent compared to the corresponding period, last year.

The refinery output, which is mostly dependent on imported crude oil, and fertiliser, steel and cement, were able to perform better. Refinery output carries a weight of 5.94 per cent, fertiliser 1.25 per cent, steel 6.68 per cent and cement 2.41 per cent of IIP. Higher refinery output, steel and cement helped IIP stay positive.

However, it is the performance of the electricity generation industry, having the single heaviest weight of 10.32 per cent, which has once again emerged as a major face saver. And, much of it is due to the continuing good showing by the industry leader, NTPC Limited, despite input constraints. With 18.44 per cent share in the country’s gross installed capacity, NTPC contributes some 27.37 per cent to the total electricity generation and, thereby, registering an efficiency factor of 1.5 times of the share in capacity. This has been making all the difference and setting an example for all other power utilities including private sector players such as Tata Power, Adani Power, JSW Energy and Reliance Power. Notably, NTPC is among the most cost efficient electricity producers in India.
In FY13, six coal-based stations out of its 16 achieved over 90 per cent plant load factor (PLF).

It has been on the forefront of adopting the latest and the most efficient technology, recently commissioning its first super-critical project at Sipat. NTPC is a market leader in terms of setting up of projects based on super-critical technology – 78 per cent of under construction thermal capacity.
Recession teaches corporate management to be more innovative, technology savvy and cost competitive. And, when better days come, those best recession-managed companies fare much better than others. Although there is no immediate sign of demand recession in the power sector despite industrial slowdown, NTPC has chosen to follow the innovate practices to stay well ahead of others in the industry as well as in the corporate sector to continue to reap better results in terms of operations and financial performance compared to its competition.

Indian industry should take a cue from good operational practices of companies such as NTPC to beat the current depressive market sentiment to improve output and contribute to the economic growth. The revision of the gas price formula, higher coal price and higher crude oil prices should serve as strong incentives to gear up production of indigenous energy sources.

The energy group’s performance, especially those coal and natural gas, in the coming months will hold the key to the improvement of IIP and the country’s economic growth during the remaining part of the financial year. The current industrial output growth trend can’t be allowed to continue.
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