The country's output from eight core sectors rose four per cent in December, slowing from the much larger growth of 7.4 per cent in November.
Released a day before the government is set to announce the national budget, this dip in core sector growth rates have raised questions over a broad-based revival in industrial demand that seemed to have been heralded by the November figures.
However, economists also said a favourable base effect related to the temporary slowing in activity last year after demonetisation was likely to boost volume growth in a variety of sectors in the remainder (till March 31) of 2017-18.
Contributing 40 per cent to total industrial production, output in the core sectors saw sustained rise in cement production and healthy growth in refinery products, pushing the figures into positive territory.
Data issued by the commerce and industry ministry on Wednesday showed the eight segments - coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity - cumulatively grew four per cent in the first nine months (April to December) of this financial year. This was lower than the 5.3 per cent growth in the corresponding period of 2016-17.
"An unfavorable base effect for steel and refinery products, as well as the continued weak performance of coal, contributed to the sequential dip in core sector growth in December, relative to the upwardly revised 7.4 per cent expansion in November 2017," said Aditi Nayar, principal economist at rating agency ICRA.
Disaggregated data reveals broad-based sequential slowdown, with six of the eight constituents of the core sector (excluding cement and fertilisers) displaying a downtick in volume growth, she added.
Cement production remained the biggest growth puller, rising by 19.6 per cent in December and building on the 18.4 per cent growth the month before. This was after the sector saw a decline in seven months during the past one year.
However, growth in steel production crashed to 2.6 per cent after rising 16.6 per cent in November, shaking the hope of growth revival in the realty and infrastructure segments.
On the energy side, crude oil saw output contract by 2.1 per cent; natural gas rose one per cent. While natural gas production had been able to maintain above four per cent till September, crude oil has seen low or negative growth for the past one year.
The rate of rise in coal production fell for a fourth straight month, slipping into negative territory with a contraction of 0.1 per cent in December.
It had a high of 15.3 per cent in August.
As a result, electricity generation also took a small hit, rising 3.3 per cent, down from the 3.9 per cent rise in November. Fertiliser production rose by three per cent, from 0.3 per cent in November. Experts pointed to renewed demand in the rabi season and new production in manufacturing plants after earlier stocks got over.
Core sector growth is set to continue for the rest of the financial year. Growth in industrial output reached a 17-month high in November; after slowing for two months, the index of industrial production rose 8.4 per cent. Also, capital goods production showed a rising trend for a fourth straight month, up to a high 9.4 per cent from the 6.5 per cent rise in October.