Economy

Core sector contracts 5.8 per cent in October

Our Bureau New Delhi | Updated on November 29, 2019 Published on November 29, 2019

core-sector-steel

Second straight month of negative growth

Core sector growth disappointed once again, registering a contraction of 5.8 per cent in October 2019. This is the second consecutive month of contraction with the September 2019 print coming at (-) 5.1 per cent.

In October last year, the core sector had registered 4.8 per cent growth.

For the month under review, all segments except fertilisers (11.8 per cent) and refinery products (0.4 per cent) had negative growth rates.

The eight infrastructure industries, including coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity, account for 40.27 per cent of the weight of items included in the Index of Industrial Production (IIP).

While coal output declined 17.6 per cent in October 2019, crude oil output declined 5.1 per cent. Natural gas and steel saw contraction in output of 5.7 per cent and 1.6 per cent respectively. While cement output contracted 7.7 per cent, electricity generation declined 12.4 per cent.

 

 

 

Experts take

Madan Sabnavis, Chief Economist, CARE Ratings, said: “We can expect a negative growth in IIP for this month (October) as it will also counter a very high negative base effect.”

He said the disappointing core sector performance is indicative of a stagnation in industry.

“The statistical disadvantage of high base did affect growth rates of the sector as a whole as well as electricity, cement and mining,” Sabnavis added.

He said that negative growth in power production is indicative of low industrial activity and also problems in the distribution companies that have showed limited improvement in the last few years. Also problems in the mining sector have impacted availability of coal.

Aditi Nayar, Vice-President and Principal Economist, ICRA, said: “Based on the unfavourable performance of the core sector, the contraction in the IIP appears set to deepen in October 2019, even as other indicators of demand such as petrol and ATF consumption have recorded an improved performance in that month”.

She said that rainfall related bottlenecks to construction activities contributed to the YoY decline in output of cement and steel in October 2019. Focus on expediting infrastructure projects, measures to aid real estate developers and proposals to address the stress in the NBFC sector may support a pickup in construction activities in the coming months.

“This should support an improvement in growth of core items such as steel and cement in the remainder of FY2020,” Nayar said.

She said that the sharp worsening in the performance of electricity generation and cement in October 2019, offset the sequential improvements in refinery production, fertilisers and coal, resulting in an even deeper contraction of the core sector output in that month.

“Overall, six of the eight constituents of the core sector displayed a YoY decline in October 2019, partly on account of disruption caused by heavy rainfall, as well as fewer working days related to the festive season”, Nayar said.

Coal output continued to contract in October 2019, following the late withdrawal of the monsoon and ongoing labour issues in some mines, although the pace of the same narrowed to 17.5 per cent from 20.5 per cent in September 2019.

“We are hopeful that production may pick up pace in November 2019 following the ebbing of rainfall,” she said.

Published on November 29, 2019
  1. Comments will be moderated by The Hindu Business Line editorial team.
  2. Comments that are abusive, personal, incendiary or irrelevant cannot be published.
  3. Please write complete sentences. Do not type comments in all capital letters, or in all lower case letters, or using abbreviated text. (example: u cannot substitute for you, d is not 'the', n is not 'and').
  4. We may remove hyperlinks within comments.
  5. Please use a genuine email ID and provide your name, to avoid rejection.