Core sector output growth fell by 1.8% in August, according to government data

3 minutes of reading Last update: September 30, 2024 | 19:47 IST

For the first time in 42 months, output from eight key Indian infrastructure sectors recorded a 1.8% year-on-year contraction in August, according to data released by the Department for the Promotion of Industry and Internal Trade (DPIIT) on Wednesday. showed.

The decline can be attributed to the high base and the impact of monsoon on industrial activities. Production growth amounted to 6.1%. in July 2024 and 13.4 percent in August 2023

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Eight sectors – coal, steel, cement, fertilizers, electricity, natural gas, refined products and petroleum – account for two-fifths of India’s total industrial output. As a result, they have a significant impact on the index.

With the exception of steel and fertilizers, which grew by 4.5% and 3.2% respectively, the remaining six sectors saw a decline.

Aditi Nayar, chief economist at ICRA, said excessive rainfall is affecting mining activities, leading to a decline in coal, crude oil and natural gas production, as well as reduced electricity production during the month.

“Excessive rainfall and an unfavorable base are also likely to impact output of the cement and steel sectors, with the former recording a year-on-year contraction and the latter recording its slowest growth in 26 months. The performance of these sectors during July-August 2024 suggests that construction activity has weakened in the first two months of Q2FY25,” Nayar said.

It expects primary sector output to remain weak in September due to late withdrawal of monsoon, followed by normalization in the third quarter of the current financial year (FY25).

Coal shrank 8.1% in August, while electricity production fell 5%. Production of natural gas, crude oil, refined products and cement fell by 3.6%, 3.4%, 1% and 3%, respectively, in August.

Paras Jasrai, senior analyst at India Ratings, said the decline was steepest in the coal and electricity sectors due to the rapid progress of monsoon rainfall in the country, resulting in lower power demand. Cement and refined products contracted due to the unfavorable impact of high base.

“The positive growth in steel production may be due to inventories accumulated by cars in connection with the holiday season. The government’s capital expenditure has also helped in increasing production in the sector,” Jasrai said.

Economists pointed out that this may also result in a slowdown in the industrial production index (IIP) for August. “ICRA expects IIP growth to slow sharply to approximately 1% in August 2024 from 4.8% in July 2024.” – Nayar said.

First publication: September 30, 2024 | 19:47 IST