Growth in output of the crucial eight core industries declined to a 10-month low of 3.6 per cent in May due to a fall in the pace of growth of steel, cement as well as contraction in crude and natural gas.
This might have an adverse impact on the index of industrial production (IIP) as core industries have 40 per cent weightage in the index. Now, much will depend on the remaining 60 per cent of the IIP.
“The moderation in the growth of core sector industries and automobile production suggest an impending decline in the pace of industrial expansion in May 2018 compared to the initial print of 4.9% for April 2018,” said Aditi Nayar, principal economist at ICRA.
Core sector growth stood at 4.6 per cent in April and 3.9 per cent in May last year.
However, a deeper analysis of the core sector showed a mixed picture. For instance, coal production rose double digits for the second month in a row in May even though at a less pace. The growth stood at 12.1 per cent in May compared to 16 per centt in April.
Nevertheless, the deterioration in the performance of coal, crude oil and natural gas in May 2018 compared to the previous month is likely to weigh upon the performance of mining in IIP, said Nayar.
Ahead of the monsoon, growth in cement production in May came down to almost one-third that in April. The figures stood at 5.2 per cent in May and 16.5 per cent in April.
Steel production was down at 0.5 per cent in May from 3.8 per cent in the previous month.
Nayar said, “The slide in the pace of growth of steel and cement, in conjunction with an unfavourable base effect, was the chief driver of the sequential dip in core sector expansion.”
Electricity generation went up 3.5 per cent in May compared to 2.1 per cent in the previous month. Nayar said the pick-up of growth in electricity generation was led by a further expansion in thermal electricity generation, as well as a narrowing the contraction in hydroelectricity generation.
Although the progress of the monsoon has improved substantially in the last week after a lull in mid-June 2018, the continued deficit in rainfall received may restrict hydroelectricity generation in the immediate term.
Benefiting from a favourable base effect, the pace of growth of fertilisers surged to a 26-month high of 8.4 per cent in May, ahead of the onset of the kharif planting season.