India's core sector growth drops to a 16-month low of 3.5% in November

Muted rise in cement production and electricity generation, apart from high base effect to blame

Growth in the eight core sectors of the economy fell to a 16-month low of 3.5 per cent in November, after it had hit a three-month high of 4.8 per cent in October.

Economists blamed an unfavourable base effect, along with a sudden slowdown in the growth of cement production and electricity output for bringing down the overall growth rate of the core sectors. 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.

“Growth has been driven by the government spending on infra. This may be a challenge to sustain as the government may cut back on capex to meet the fiscal targets,” Madan Sabnavis, chief economist at CARE Ratings, said.

Data released by the commerce and industry ministry on Monday showed that the eight segments — coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity — cumulatively grew 5.1 per cent in the first eight months (April-October) of the current financial year, remaining higher than the 3.9 per cent growth in the corresponding period of FY18.

“The Y-o-Y growth performance of a variety of early indicators, including the core industries, non-oil merchandise exports and auto production, displayed a broad-based deterioration in November 2018, driven to an extent by unfavourable base effects, partly related to a shift in the festive calendar. Accordingly, IIP growth is likely to display a considerable moderation to a modest 2-3 per cent in November 2018, from the healthy 8.1 per cent in October 2018, led by manufacturing, mining and electricity,” said Aditi Nayar, principal economist at rating agency Icra.

Despite remaining the largest growth puller, cement production saw growth reduce by more than half in November. Production expanded by 8.8 per cent in November, down from the 18.4 per cent in the previous month. Experts said cement demand growth will remain at a moderate 6-7 per cent in FY19, led by housing (chiefly affordable housing) and infrastructure (mainly road, irrigation projects).

However, the other major pillar of the construction sector — steel — saw output rise to register a 6 per cent rise in November, up from 2.6 per cent a month earlier.

Growth in coal production tumbled to a three-month low in November. Production rose by 3.7 per cent, down from the 10.6 per cent rise in October. As a result, growth in electricity generation also halved to 5.4 per cent in November, down from a high 11.4 per cent in September.

Other broad fuel components continued to do badly. Crude oil output contracted for the twelfth straight month, going down by 3.5 per cent, compared to 5 per cent in October. On the other hand, natural gas production managed to barely make it back to the growth charts. It rose by 0.5 per cent in the latest month, after contracting by 0.9 per cent in October.

However, the sharp slide in growth of refinery production — under way for the last four months — stopped in November. It rose by 2.3 per cent, up from the 1.3 per cent growth in the previous month. Having the biggest weight in the core sector index, output of the refinery products category had dropped dramatically from July, then it had hit a high of 12.3 per cent.

Finally, fertilizer production continued to crash in November. Output of the sector contracted by a significant 8 per cent in November, albeit lower than the 11.5 per cent drop in the previous month.