Core sector growth recovers to 3-month high of 4.8% in October

Cement production remains biggest growth puller even as three sectors remain in the negative zone

Growth in the eight core sectors of the economy recovered to a three-month high of 4.8 per cent in October, up from a revised 4.3 per cent in September.

A sustained rise in the cement production along with growth in electricity output managed to boost the core sectors despite three out of eight of the core sectors showing contraction.

Contributing 40 per cent to the total industrial production, output of the core sectors has increasingly focused on cement production, led by rising construction activity across the country. 

Data released by the commerce and industry ministry on Friday showed that eight segments — coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity — cumulatively grew 5.4 per cent in the first seven months (April-October) of the current financial year, remaining higher than the 3.5 per cent growth in the corresponding period of FY18.

"Cement production growth rose sharply to 18.4 per cent in October, up from 11.8 per cent in September, driving the improvement in core sector growth. Cement demand growth is estimated by ICRA at a moderate 6-7 per cent in FY2019, led by housing (chiefly affordable housing) and infrastructure (mainly road, irrigation projects)," said Aditi Nayar, principal economist at rating agency Icra.

With an unfavorable base effect related to the sustained double-digit growth in cement output from November 2017 on wards, we expect cement growth to decline sharply in the last five months of FY2019, relative to the 15 per cent recorded in April-October 2018, she added.

However, the other major pillar of the construction sector - steel - saw output decline to only register a 2.2  per cent growth in October, down from 3.2 per cent a month earlier.

The third highest growth puller - coal - saw output rise to a four month high 10.6 per cent in October, up from 6.4 per cent in September, benefiting from a favorable base effect, which is expected to persist in the remainder of the third quarter of the current financial year, according to experts. As a result, electricity generation also rose to a double-digit 11.4 per cent in September, continuing a four-month long growth streak.

Other broad fuel components continued to do badly. Crude oil output contracted for the eleventh straight month, going down 5 per cent, compared to 4.2 per cent in September. On the other hand, natural gas production saw a smaller contraction of 0.9 per cent after hitting the negative zone in September with a 1.7 per cent contraction.

Inevitably, the sharp slide in growth of refinery production continued for the fourth straight month. Having the biggest weight in the core sector index, output of the refinery products category had dropped dramatically from July, hen it had hit a high of 12.3 per cent to only 1.3 per cent in October.

Finally, fertilizer production crashed in October. Output of the sector contracted by a significant 11.5 per cent, after clocking a 2.5 per cent rise in September.