June core sector growth rises to 5.2%

Sharp pick-up in coal and cement production boosts core sector growth

On the back of robust growth in coal and cement production, the core sector grew by 5.2% in June. The index recovered from a five-month low in May, when it had grown 2.8%.

Data released by the Commerce Ministry on Monday shows that growth in the eight core industries - coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity - had a cumulative growth of 5.4% for the months leading up to June in the current financial year.

The core sectors, which constitute 38% of India's total industrial production, had a lower growth of 2.5% in the same period of the previous year.

The June core sector data represents the last crucial macroeconomic data before the Reserve Bank of India convenes the monetary policy review next week. Rising industrial growth, coupled with high food inflation, might convince RBI to retain the current policy rate of 6.5%.

Given the current situation, RBI might maintain status quo, Madan Sabnavis, Chief Economist at CARE ratings said. He added that the RBI will also take heed of the growing debate over Index of Industrial Production (IIP) numbers not accurately portraying the state of the economy.

While only fertiliser output had registered double-digit growth in May, two sectors - coal and cement production - rose 12% and 10.3%, respectively in June. Rising by 5.5% in the previous month of May, coal production grew at the fastest pace in a year. Cement production also jumped after a 2.4% rise in May.

After consistently providing the major push to the index for most of the last financial year, fertiliser output rose at a slower pace in June at 9.8%. It had been the fastest growing sector in the previous month of May, rising 14.8%. It is also the highest growing sector in the current financial year, rising by a cumulative 11%.

Growth in the refinery products sector had consistently risen since December 2015, before suddenly plummeting to a marginal 1.2% rise in May. It rose 3.5% in June.

Electricity generation improved in June, at 8.1%, compared to May when it had risen 4.6%. The rate of growth also fell for steel, whose output rose 2.4% after a 3.2% growth in the previous month.

On the other hand, both crude oil and natural gas production contracted for the fourth straight month. Managing to rise only twice in the past 12 months, crude oil production fell 4.3% in June compared to a 3.3% fall in May. However, the rate of fall for natural gas moderated to 4.5% from 6.9% in May.

Released earlier in the day, the widely-tracked Nikkei purchasing managers' index (PMI) showed that manufacturing activities gathered pace slightly in July compared to the previous month. The PMI inched up to 51.8 points in July, against 51.7 in the previous month, owing to high demand from both domestic and external markets.