You are here: Home » Economy & Policy » News
Business Standard

Core sector growth at 50-month low in June; 4 out of 8 sectors contract

June growth rate falls to 0.2%, from 4.3 % in May, as refinery, steel and cement production weakens

Subhayan Chakraborty  |  New Delhi 

core sector growth
Four of the eight industries making up the core sectors, which contribute almost 40 per cent to the country’s total industrial production, registered a contraction in the month

Growth in the eight core sectors of the economy collapsed to 0.2 per cent in June — a staggering 50-month low — dragged down by major contraction in the energy segment and weak performance across industries.

The data released by the commerce and industry ministry on Monday showed that coal, crude oil, natural gas, refinery products, fertiliser, steel, cement, and electricity industries saw the rate of growth take a sudden hit in June after a slight dip in May when it was 4.3 per cent.

Four of the eight industries making up the core sectors, which contribute almost 40 per cent to the country’s total industrial production, registered a contraction in the month. This is symptomatic of stagnation setting in the domestic industry, said economists.

June’s freefall growth rate is blamed largely on refinery production, which commands almost 30 per cent of the index, by weight. The sector saw a 9.3 per cent contraction in the latest month, much more than the 1.5 per cent fall in May. The closure of key refining units and sudden changes to the oil import value chain has led to repeated volatility in the sector in 2019.

“The fall in petro products can be attributed both to internal issues as well as declining prices of crude oil, which makes imports cheaper under a stable exchange rate regime,” Madan Sabnavis, chief economist at CARE Ratings, said. Barring a two-month growth spree beginning March, sectoral output has contradicted every month in the current year.

The same was true across the energy space.

went down by 6.8 per cent in June, compared to 6.9 per cent in May, the highest margin of contraction in the past 12 months. In June, natural gas production also contracted by 2.1 per cent, after registering zero growth in May.

However, coal output growth gained pace, rising by 3.2 per cent in June, up from May’s growth of 1.8 per cent. Production had hit a high of 9.1 per cent in March.

The cement and steel sectors also saw their performance weaken in June. “The government spending has also been lower this quarter, which may explain why cement has turned negative this month —though there was the base effect here where growth was 14.2 per cent last year,” added Sabnavis.

Steel output growth was slashed by more than half in June, with growth rate standing at 6.9 per cent, down from 15.3 per cent in May. Another sector indicating the health of construction and infrastructure development — cement — saw production contract by 1.5 per cent, after rising by 2.8 per cent in May. Growth had tapered off after hitting an 11-month high of 15.7 per cent in March.

Core sector growth at 50-month low in June; 4 out of 8 sectors contract

Electricity generation rose by 7.3 per cent in June, slightly lower than 7.4 per cent growth in May. Growth in the electricity sector had dipped to its lowest point in the last 71 months in January. A low growth in coal output had been blamed then. However, growth has steadily risen since then.

“The marginal core sector growth, combined with the contraction in both auto production and non-oil merchandise exports, suggests that Index of growth would be muted at around 1 per cent in June 2019. Overall, there is limited visibility of a broad-based improvement in the Indian industrial outlook. The core sector data further strengthens the likelihood of a repo rate cut in the August 2019 policy review,” Aditi Nayar, principal economist, ICRA, said.

Fertiliser production rose in June by 1.5 per cent, after going down by 1 per cent in May. The sector had grown four months out of the six in the current calendar year.

First Published: Wed, July 31 2019. 20:21 IST
RECOMMENDED FOR YOU