Growth of 8 core sectors slows to 2.1% in July, recovers from 50-month low

Yet, it recovers from a 50-month low in June as cement output jumps

A spurt in cement production and slower contraction in the energy segment managed to pull up growth in the eight core sectors of the economy marginally to 2.1 per cent in July. Growth had collapsed to only 0.2 per cent — a 50-month low — in June.

Still, growth was much slower than in July last year when it was 7.3 per cent.

The data released by the commerce and industry ministry on Monday showed that the coal, crude oil, natural gas, refinery products, fertiliser, steel, cement, and electricity sectors showed poor performance across the board. The only exception was cement, which in July witnessed production jumping 7.9 per cent, after a 1.7-per cent contraction in the previous month. Growth had tapered off after hitting an 11-month high of 15.7 per cent in March.

However, another major sector indicating the health of construction and infrastructure development — steel — saw a slowdown in output growth. Steel output rose only 6.6 per cent in July, as against 8.4 per cent in June and 15.3 per cent in May.

Four of the eight industries making up the core sectors, which contribute more than 50 per cent to the country’s total industrial production, registered a contraction in the month. This is a symptom of stagnation setting in the domestic industry, said economists. “The data offers mixed cues, with moderately healthy growth in cement and steel output juxtaposed against the year-on-year contraction in four indices — coal, crude oil, natural gas and refinery outputs. A pick-up in government spending after the Budget may support cement and steel output in the next few months,” said Aditi Nayar, principal economist at ICRA.

Slow growth in the core sectors has been blamed especially on volatile changes in refinery production, which commands almost 30 per cent of the index by weight. The sector saw a 0.9-per cent contraction in July — a much milder contraction, as against the 9.3-per cent contraction in the previous month. Senior officials said the sector would soon return to growth as a recovery in production was well underway since June when key refining units were closed and importers were dealing with sudden changes to the oil import value chain due to the government reducing its exposure to Iranian crude. 

 

July, too, saw the only component of the energy segment among the core sectors that had been growing for the past 24 months — coal — go in into the negative zone. 

After rising 3.2 per cent in June, coal production contracted by 1.4 per cent in July. 

With a deepening contraction in the output of Coal India Limited in the just-concluded month, a continued year-on-year decline in coal production is likely to weigh on the core sector, as well as mining growth in August 2019, Nayar warned.

 Due to less coal mining, electricity generation also faltered in July, with the rate of growth reducing to 4.2 per cent, down from 8.1 per cent in June.

Finally, fertiliser production rose in July by 1.5 per cent, the same as the previous month.