India’s core sector growth slows to 4% in June

New Delhi: Growth in manufacturing output in India’s core manufacturing sector, which accounts for about two-fifths of manufacturing output, fell to 4% in June, a 20-month low, provisional data from the commerce and industry ministry showed on Wednesday.

The lower growth can be attributed to a slowdown in activity in sectors such as electricity, steel and natural gas, while production of crude oil and refined products declined during the month.

A year ago, output in eight major industries — coal, oil, steel, cement, electricity, fertilizers, refined products and natural gas — rose 8.4%. A month ago, the increase was 6.4%.

Growth of 4% in June compared with growth of 0.7% recorded in October 2022 as the economy emerged from the pandemic.

Provisional data may be revised next month.

Industry Performance

The latest data on key sectors showed that only three of the eight major industries — coal, fertilisers and cement — recorded sequential output growth, while output of crude oil and refined products declined in June.

Coal production rose 14.8% in June from a 10.2% increase in May, fertilizer production rose 2.4% from a 1.7% decline in the previous month, and cement production rose 1.9% from a 0.6% decline in May.

Meanwhile, electricity production rose 7.7% in June from 13.7% the previous month, steel production rose 2.7% from 6.8% in May and natural gas production rose 3.3% in June from 7.5% the previous month.

Growth in crude oil and refined products production slowed to 2.6% and 1.5%, respectively, in June. Crude oil production declined by 1.1% in May, while refined products production rose by 0.5% in May.

Refined products production accounts for over 28% of the index of eight major industries.

Expert opinion

The decline in growth in the primary sector can likely be attributed to lower government capex ahead of the general elections (to be held in April-June 2024) and a slowdown in construction, which led to a temporary drop in demand for steel and cement, said Suman Chowdhury, chief economist and head of research at Acuité Ratings & Research.

“The key segments that continue to see solid growth in production are coal and electricity, given the higher demand for electricity due to the delayed monsoon and heatwave in parts of the country,” he added.

Incidentally, according to the HSBC India Manufacturing Purchasing Managers Index (PMI) released in early July, manufacturing activity in India fell to a three-month low in May but recovered in June, driven by a rise in new orders, output and record employment growth.

The HSBC India Manufacturing PMI, compiled by S&P Global, was 58.3 in June, 57.5 in May and 58.8 in April.

Experts expect the additional instalment of tax funds released to states in June 2024 to revive capital expenditure by states, while the Centre’s fiscal 2025 budget proposals for capital expenditure could give a boost to the construction and infrastructure sectors.

“However, there will be an adverse base effect over the next four months which is likely to have a negative impact on core sector growth,” rating agency India Ratings and Research said in a commentary on the latest core sector data.

“The average year-on-year growth during July-October 2023 was 11%. Ind-Ra expects the core sector to grow at an average rate of 5% year-on-year over the next three to four months,” it added.