India's core sector maintains double-digit growth at 12.7% in June

8 infra sectors grew 12.7% YoY in June; there was a contraction MoM

India’s eight infrastructure sectors grew in double digits for the second consecutive month in June, even as sequentially growth faltered.

Data released by the industry department on Friday showed the core sector grew 12.7 per cent in June year-on-year; sequentially, it contracted 4.1 per cent.

Aditi Nayar, chief economist at Icra, said there was a fairly broad-based moderation in core sector growth, from 19.3 per cent in May to 

12.7 per cent in June, reflecting the normalising base. “The core sector reported 8 per cent growth in June 2022 from the pre-Covid level, with a healthy performance from all the sectors, except steel and crude oil. In line with the moderation in the YoY performance recorded by most high-frequency indicators, as well as the core sector in June 2022, we expect IIP growth to ease to around 11-13 per cent in that month,” she said. 

The disaggregated trends of core sector data are exceedingly mixed, ranging from a contraction of 1.7 per cent for crude oil to a robust expansion of 31.1 per cent for coal. Apart from coal, cement, refinery products, and electricity generation demonstrated double-digit growth in June; growth in steel and natural gas was quite muted.

Madan Sabnavis, chief economist at Bank of Baroda, said core sector growth is impressive given a high base of 9.4 per cent in June 2021. “The pick-up in economic activity meant that power demand increased and coal production kept pace. After June, due to the monsoons, we can expect a moderation for coal. We may expect industrial growth for the year to be closer to the 9-10 per cent mark in June,” he added.

The International Monetary Fund (IMF) on Tuesday slashed growth forecast for India by 80 basis points to 7.4 per cent for FY23, citing less favourable external conditions and rapid policy tightening by the central bank.

In its update to the April World Economic Outlook, the IMF said though a global recession in 2022 is ruled out with growth estimate of 3.2 per cent, the balance of risks is squarely to the downside, driven by a wide range of factors that could adversely affect global economic performance.  

The downward revision of India’s growth forecast by the IMF came days after the Asian Development Bank pared down its growth projection for India to 7.2 per cent for FY23, from 7.5 per cent, citing higher-than-anticipated inflation since April and subsequent monetary tightening by the central bank.

India’s inflation remained above the RBI’s upper tolerance limit for a sixth straight month in June. On June 8, the six-member Monetary Policy Committee (MPC) of the RBI raised the repo rate by 50 basis points, following an off-cycle rate hike of 40 basis points in May. Analysts expect a further rate hike in the MPC meeting on August 5.