Economy

Eight core industries’ output contracts 0.5% in August

Our Bureau New Delhi | Updated on September 30, 2019 Published on September 30, 2019

All eyes on festival demand to push growth, RBI seen cutting rates in October: experts

The eight core industries’ output contracted 0.5 per cent in August. In the same month last year, the core industries’ output grew 4.7 per cent.

The latest datapoint was also lower than the 2.7 per cent growth recorded in July this year.

It was disappointingly weak with as many as five sectors — coal, crude oil, natural gas, cement and electricity — recording a contraction during the month under review. This is the first contraction in core industries data since April, reflecting weaker demand.

For the April-August period, the core industries’ output grew 2.4 per cent compared to 5.7 per cent in same period last year.

The eight core sector industries are coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity.

Coal, crude oil, natural gas, cement, and electricity contracted 8.6 per cent, 5.4 per cent , 3.9 per cent, 4.9 per cent and 2.9 per cent, respectively in August, official data released on Monday showed.

However, refinery products, fertiliser and steel production grew 2.6 per cent, 2.9 per cent and 5 per cent respectively during the month. During April-August, growth in the eight core industries grew by 2.4 per cent from 5.7 per cent in the year-ago period.

Madan Sabnavis, Chief Economist, CARE Ratings, said the core sector data disappoints once again with negative growth of 0.5 per cent in August.

While this is for the period before the government announced various measures to revive the economy, it does indicate stagnation in the infra space meaning thereby that the government effort at propping up investment has been weak.

Negative growth

“IIP growth will tend to be anaemic in August as there has been less growth seen in the consumer and capital goods segment. While negative growth cannot be ruled out if there is a chance of growth being in the 1-2 per cent range given the statistical base effects,” Sabnavis said.

Devendra Kumar Pant, Chief Economist, India Ratings, said Ind-Ra expects a cut in October monetary policy review. However, the extent of cut could depend on the assessment of growth impact of policy measures announced by the government in past few weeks. “All eyes are on festival demand to push industrial growth. The MPC will take note of weak demand, falling growth and low inflation in its monetary policy review on October 4,” he said.

Aditi Nayar, Vice-President and Principal Economist, ICRA, said the contraction in the core sector growth in August confirms the ICRA view that the modest pickup in the IIP growth in July did not signal the start of an industrial recovery. “With the contraction in the core sector output, auto production and non-oil merchandise exports, we expect the IIP growth to print at a muted sub-1 per cent in August. We continue to expect the MPC to cut the repo rate by 25 bps in the upcoming October policy review,” she said.

Published on September 30, 2019
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