June core sector growth slows to 3%

Partly due to higher base of last year; oil and gas output falls

Growth in the eight core sectors — coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity — slowed to three per cent in June after a six-month high of 4.4 per cent in May, mainly on account of contraction in crude oil and natural gas production.

Total growth in the core sectors, which has a weightage of nearly 38 per cent in the Index of Industrial Production, during the April-June period came down to 2.4 per cent from six per cent in the first quarter of 2014-15, according to data issued on Friday by the ministry of commerce and industry. Crude oil production declined 0.7 per cent in June. During the first quarter, April-June, its production declined 0.9 per cent over the same period last year.  Similarly, production of natural gas contracted 5.9 per cent in June. Its cumulative index during April to June declined by 0.9 per cent over the corresponding period of 2014.

According to economists, the June core sector data was largely influenced by a positive base effect in June 2014. “The sequential dip is largely driven by an adverse base effect related to electricity generation and is, therefore, not a cause for alarm. However, this base effect is expected to persist for the subsequent two months as well, with electricity generation having expanded by 11-16 per cent in June-August 2014,” said Aditi Nayar, senior economist, ICRA. The growth in coal production came down to 6.3 per cent in June from a 7.8 per cent rise the previous month and 8.2 per cent in the same month last year. Cumulatively, it increased 7.3 per cent over the corresponding period of 2014.

"June core sector growth is affected by the strong positive base effect in June 2014. Importantly, coal, fertiliser, steel and cement all have grown in June as compared to May. Electricity output growth of 0.2 per cent in June, although on the face of it is disappointing,  is achieved on 15.7 per cent growth in June 2014. In sum, despite weak demand conditions, three per cent growth in the core sector is encouraging,” said Devendra Kumar Pant, chief economist, India Ratings. Electricity generation increased 0.2 per cent in June and its cumulative index rise in April-June was 1.5 per cent over the corresponding period of last year.

Production of cement increased 2.6 per cent in June. Cumulatively, it increased 0.9 per cent over the corresponding period of last year. Steel output rose 4.9 per cent in June and 2.8 per cent in the quarter from 2014-2015. “The pick-up in growth of steel production for a third month is encouraging,” Nayar added.