Core sector growth slips to 5-month low in May

Industrial production had contracted by 0.8% in April, snapping the rising trend seen in the two previous months

India’s core sector expanded at a five-month low in May on account of a decline in output in some sectors, such as steel and cement.

Although supply-side constraints have eased to an extent, the revival of industrial performance remains a challenge. The production index for eight core industries grew 2.8 per cent in May, against a robust 8.5 per cent the previous month, pulled down by crude oil, refinery products, steel and cement, show data issued by the ministry of commerce and industry on Thursday.

“Despite the uptick in growth of automobile production and turnaround in non-oil merchandise export, the sharp slowdown in core sector growth in May suggests a low likelihood of a meaningful improvement in IIP (Index of Industrial Production) performance in the just-concluded month,” said Aditi Nayar, senior economist at ratings agency Icra.

The eight industries are coal, electricity, crude oil, natural gas, steel, cement, fertiliser and refinery products. The index of eight core industries contributes 38 per cent to the IIP. Industrial production had contracted by 0.8 per cent in April, snapping the rising trend seen in the two previous months. Crude oil and natural gas output fell for a third straight month in May, at minus 3.3 and minus 6.9 per cent, respectively.  Fertiliser sector output grew in double digits at 14.8 per cent, up from 7.8 per cent growth in April. Coal output growth picked up to 5.5 per cent, as against a 0.7 per cent contraction in April.

“The turnaround in coal output to a four-month high confirms the view that the contraction in the previous month was temporary, driven by the build-up of inventories,” said Nayar. Steel output grew at a three-month low of 3.2 per cent, as against 6.1 per cent the previous month.

Cement production growth was at a six-month low of 2.4 per cent, indicating sluggishness in construction activity. Electricity output expanded by 4.6 per cent in May, against 14.7 per cent the month before.