July core sector growth slows to 1.1%

Contraction in coal and steel production that hints at a weak industrial recovery

Growth in the eight core sectors — coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity — slowed to 1.1 per cent in July after a growth of three per cent in June, mainly on account of low expansion in coal output and contraction in steel, crude oil and natural gas production  that hinted at a weak industrial recovery.

Total growth in the core sectors, which has a weightage of nearly 38 per cent in the Index of Industrial Production (IIP), during the April-July period stood at 2.1 per cent from 5.5. per cent in the corresponding period of 2014-15, according to data issued by the ministry of commerce and industry on Monday.

Growth in coal production slowed drastically to a depressing 0.3 per cent compared to a robust growth rate of 6.3 per cent in the previous month of June. A year ago coal production in July stood at 5.7 per cent. During April-July period, growth in coal production increased 5.7 per cent compared to 6.4 per cent in the same period last financial year.

In June, steel production also shrank 2.6 per cent from a growth of 4.9 per cent in the previous month. Its cumulative index during April-July 2015-16 increased by 1.4 per cent over the corresponding period of previous year. According to economists, the July core sector data pointed towards sluggish recovery of the industrial sector. “July core sector growth at 1.1 per cent highlights weak industrial recovery. Coal output growth is affected by base effect,” said Devendra Kumar Pant, chief economist, India Ratings (Ind-Ra). Pant added that the core sector output in July point towards a weak IIP growth in July 2015.

Electricity generation increased by 3.5 per cent in July. Its cumulative index during April-July 2015-16 increased by two per cent over the corresponding period of previous year. Crude oil production declined 0.4 per cent in July. During April-July it declined by 0.7 per cent from a fall of 0.4 per cent in the same period last financial year. Natural gas output was down 4.4 per cent in July against 5.9 per cent fall in June and 8.9 per cent contraction in July, 2014. In none of the months in the year, natural gas production showed an increase, reflecting the woes of the industry.

“While the performance of the individual sectors was mixed in July 2015, the overall slowdown in core sector growth relative to the previous month is disappointing and does not augur well for overall industrial growth in that month. In particular, the stagnant performance of the coal sector is in contrast to the healthy six-eight per cent growth sustained over the previous four months,” said Aditi Nayar, senior economist, ICRA.

The mild uptick in electricity growth in July following the negligible rise in June 2015 is partly on account of an easing of the adverse base effect, she said.

Production of cement increased 1.3 per cent in July. Cumulatively, it increased one per cent over the corresponding period last year.