Core sector growth slowest in 4 months, expands 4.3% in September

IIP numbers for September will be crucial as this is one of the last important data before the Q2 GDP figures are released by end-November

The eight-industry core sector grew at 4.3 per cent in September, the slowest in four months, dragged down by lower crude oil and natural gas output. In August, it had grown by 4.7 per cent.

This will have repercussions for industrial production growth in the month as well, as the core sector has 40.27 per cent weight in the index of industrial production (IIP). The IIP growth had fallen to a four-month low of 4.3 per cent in August.

The IIP numbers for September will be crucial as this is one of the last important data before the second quarter gross domestic product (GDP) figures are released by end-November.

Inflation based on retail and wholesale price indices are also released after the IIP. Other price deflators are used for calculating GDP.

Even if the IIP in September is high compared to August, it could be because of a low base effect, said Icra Chief Economist Aditi Nayar.

IIP growth in September could be about 4-5 per cent, said CARE Ratings Chief Economist Madan Sabnavis, adding, “The momentum must be maintained in capital and consumer goods.”

Crude oil production declined 4.2 per cent and natural gas output fell 1.8 per cent in September. In August, too, two of the eight industries — oil and fertiliser — showed contraction in output.

“This contraction remains a cause for concern,” said Nayar.

Fertiliser output grew slightly (2.5 per cent) in September. “The shows the industry is preparing for the rabi season,” said Sabnavis.

Growth of refinery products, which also hit core sector growth, grew at 2.5 per cent in September, against 5.1 per cent in August.

“Base effect-led dip in growth of refinery production in September drove the decline in core sector expansion,” Nayar said. The refinery output grew by 8.1 per cent in September last year. It has the highest weight of 28 per cent in the core sector index.

Cement production rose 11.8 per cent in September; last year, it grew 14.7 per cent. This was the 11th month in a row that cement output grew in double digits. This could be attributed to a push to infrastructure and affordable housing.

Electricity generation rose 8.2 per cent in September, against 7.6 per cent in the previous month. Coal production grew 6.4 per cent in the month under consideration, against 2.4 per cent in the previous month. This augurs well for future growth, said Sabnavis.

Growth in steel production slowed to 3.2 per cent, against 4 per cent in the previous month. In July, this grew 6.9 per cent.