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Slowdown clouds darken: Core sector output contracts 5.8% in October

Economists said the latest figures portend a deepening of the ongoing industrial slowdown

Subhayan Chakraborty  |  New Delhi 

construction, realty sector, flats, NCLT, IBC, Housing

The output of the eight core sectors of the economy fell for the second month in October, contracting by a record 5.8 per cent as a broad-based decline gripped almost all industries. Output had contracted by 5.2 per cent in the previous month — September — after rising just 0.1 per cent in August.

Cumulative growth of the core sectors till October in the current fiscal year (FY19) stood at only 0.2 per cent, down from 5.4 per cent in the previous year.

Economists said the latest figures portend a deepening of the ongoing industrial slowdown. “Such low growth in industries has not been witnessed so far on either the 2011-12 or 2004-05 base. This indicates the severity of industrial slowdown,” said Sunil Kumar Sinha, principal economist at India Ratings.

Data released by the Commerce and Industry Ministry on Friday showed the decline in production across sectors such as coal, crude oil, natural gas, steel, cement, and electricity intensified further in October.

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However, the engulfing industrial slowdown seems to have bypassed fertiliser production which rose by 11.8 per cent in October, constituting the highest growth in more than a year.

Coal production contracted by 17.5 per cent in the month. This was, however, lower than the steepest fall of 20.5 per cent seen in September. Contraction in the sector continued to become entrenched since July, when a 24-month growth period ended. The latest figures come amid reports of low electricity demand countrywide.

Electricity generation shrank by 12.4 per cent, contraction shooting up from the 2.4 per cent fall reported in September.

“Heavy rainfall reduced demand for power from the agricultural and household sectors, and demand from the manufacturing sector was limited, given the holidays during the festive period,” said Aditi Nayar, principal economist at ICRA.

“With healthy reservoir levels, hydroelectricity generation would remain robust in FY20. This, in conjunction with an increasing share of other renewable generation sources (mainly wind and solar), would thereby squeeze thermal electricity generation in the next few quarters,” she said.


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Elsewhere in the energy space, crude oil production continued its downward spiral, having completed a continuous chain of contraction for the past 13 months. Production reduced by 5.1 per cent, slightly lower than the 5.4 per cent contraction in September. Natural gas extraction also continued to fall for the seventh straight month, reducing by a higher margin of 5.7 per cent in October.

As a result of these trends, refinery products managed to grow by a marginal 0.4 per cent, after contracting by 6.6 per cent in the previous month. The sector has remained volatile in FY20. However, senior officials continue to claim that a recovery in production is underway as key refining units, which were closed earlier, go live. Importers continue to deal with changes in the oil import value chain because of the government reducing its exposure to Iranian crude oil.

The latest data also casts a shadow over infrastructure growth in the country as both steel and cement production tanked. Cement output contracted by 7.7 per cent in October, down from the 2.1 per cent reduction in September. Steel output also reduced by 1.6 per cent, remaining negative for the second month following an 11-month growth streak. Experts blamed heavy rainfall in major parts of the country for a slowdown in construction activities.

The eight core sectors make up over 40 per cent of the Index of Industrial Production (IIP) which had earlier showed that overall industrial production shrank by 4.3 per cent in September — an eight-year low.

Slow growth has been on account of volatile changes in refinery production, which commands almost 30 per cent of the index by weighting. Production went down by 6.7 per cent in September.

First Published: Fri, November 29 2019. 22:43 IST
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