Core sector growth hits 14-month low of 3.8% in Dec due to high base

Only fertilisers and cement sectors see acceleration in output

India’s core sector output growth hit a 14-month low of 3.8 per cent year-on-year in December on the back of a high base and a moderation in the growth of six constituent sectors, according to the Ministry of Commerce and Industry data released on Wednesday.
 

This was sharply down from 7.9 per cent witnessed in the previous month. In December 2022, the core sector, comprising eight key infrastructure industries, had grown 8.3 per cent.
 

According to the data, only fertilisers (5.8 per cent) and cement (1.3 per cent) sectors saw an acceleration in the output in December as compared to the preceding month. Growth in the output of coal (10.6 per cent), natural gas (6.6 per cent), refinery products (2.6 per cent), steel (5.9 per cent), and electricity (0.6 per cent) decelerated sequentially in December. On the other hand, crude oil production contracted (-1 per cent) for the second consecutive month in December.
 

Madan Sabnavis, chief economist at Bank of Baroda, said that while admittedly the high base effect was at play, there was also a slowdown in the infra sector as the government spending on capital expenditure was steady but the same was not seen in the private sector.

 

“The coal sector did well due to higher mining in preparation for greater power demand due to winter. The electricity sector, however, slowed down reflecting partly lower industrial activity. Fertilisers growth was steady and kept pace with demand, which would be waning as the sowing for rabi season concludes virtually this month. However, higher demand for capital goods and automobiles kept production growth up,” he added.
 

Sunil K Sinha, chief economist at India Ratings, said that the silver lining was the core sector output was 18.9 per cent higher than the pre-Covid level (February 2020) in December 2023.
 

“Notably, output of all the eight sectors was higher than the pre-Covid level, pointing to a continuation of the infrastructure sector recovery. The combined capital outlay of union and 15 states grew 79.8 per cent year-on-year to Rs 1.06 trillion in December 2023. The phenomenal support from government capex is providing much-needed impetus to the infrastructure sector,” he added.
 

For the April-December period, the core sector output growth stood at 8.1 per cent against 8 per cent in the previous financial year. The eight core industries account for 40.27 per cent of the weighting of items included in the Index of Industrial Production (IIP), thus having a significant impact on the index.
 

“With the base turning unfavourable, we expect the industrial output to record a muted growth in the range of 1-2 per cent in December, in line with the moderation seen in core sector growth,” said Care Edge chief economist Rajani Sinha.