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August core sector output rises by 4.9% from 2.6% in July

Jump in coal production and electricity generation behind the rise

Subhayan Chakraborty  |  New Delhi 

Steel makers

The output of the eight major core sectors in the country rose by 4.9 per cent in August — a five-month high — as compared to the 2.6 per cent rise seen in July.

This was primarily led by a double-digit jump in production and subsequent rise in generation.

Economists suggested this represented industrial revival in the country, especially after the bounced back into growth territories in July after a 48-month low output in June.

Data issued by the commerce and industry ministry on Thursday showed the eight core segments — coal, crude oil, natural gas, refinery products, fertiliser, steel, and — cumulatively grew 3 per cent in the first five months (April-August) of this financial year. This was lower than the 5.4 per cent growth in the corresponding period of 2016-17.

Contributing 40 per cent to total industrial production, total core sector output had been a paltry 0.8 per cent in June.

August core sector output rises by 4.9% from 2.6% in July
Growth in production continued to strengthen in August with output rising by 15.3 per cent. It had managed to rise by the slowest pace of 0.6 per cent in July after three straight months of contraction.

"production benefited from a favourable base effect, and below average rainfall in parts of the country. The robust performance in that month has helped to narrow the YTD contraction to a marginal 0.2 per cent, Aditi Nayar, Principal Economist at said.

As a result of this, generation rose by 10.3 per cent in August. It had risen by 5.4 per cent in July, up from the 2.2 per cent rise in June. This reflects a favourable base effect, as well as some improvement in industrial demand post-GST, economists believe.

Data released by the Central Authority has indicated a rebound in thermal generation since July. However, the pace of growth of hydroelectricity had moderated sharply to 2.2 per cent in July from the 11.2 rise in June.

witnessed the third highest growth rate among the sectors, rising by 4.2 per cent in August. However, this was lower than the 6.6 per cent growth seen in the previous month of July.

On the other hand, managed to make a comeback into the growth charts with 2.4 per cent growth. It had contracted by 2.7 per cent in July.

Growth in production stood at 3 per cent in August as compared to the 9.1 per cent rise seen in July. This was a reversal of the continuously strengthening growth rate the sector had been witness to since May.

"Quite clearly there has been limited activity in the infra space this month notwithstanding the frontloading of government capex in the first few months of the year.", Madan Sabnavis, Chief Economist at CARE Ratings said.

The slowdown in the real estate sector could be one reason also for lower demand for and as a combination of demonetization, and RERA — all significant reforms that were needed — have temporarily come in the way of both demand and supply which should get reversed in next few months, he added.

production showed the poorest performance among all sectors, contracting by 1.6 per cent in August. Crude production had contracted by 0.5 per cent in July as well.

production continued falling in August, albeit by a smaller margin of 1.3 per cent, from the 2 per cent fall in July. The sector has seen prolonged contraction for nine straight months now.

Finally, production also contracted in August, going down by 0.7 per cent after a minor 0.2 per cent rise in July.

Economists expect an overall uptick in industrial growth for August owing to an improvement in automobile production and core output, as well as the rebound in the PMI reading above the threshold of 50.

"Given the favourable base effect and the expected rebuilding of inventories prior to the festive season, we expect the IIP growth to improve in August 2017 relative to the initial estimate of 1.2 per cent for July 2017." Aditi Nayar said.

First Published: Wed, October 04 2017. 01:59 IST