New Delhi: Growth in the eight core sectors of the economy collapsed to 0.2% in June – a staggering 50-month low – dragged down by a major contraction in the energy segment and weak performance across industries.
The data released by the commerce and industry ministry on Monday showed that coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity industries saw the rate of growth take a sudden hit in June after a slight dip in May when it was 4.3%.
Four of the eight industries making up the core sectors, which contribute almost 40% to the country’s total industrial production, registered a contraction in the month. This is symptomatic of stagnation setting in the domestic industry, said economists.
June’s freefall growth rate is blamed largely on refinery production, which commands almost 30% of the index, by weight. The sector saw a 9.3% contraction in the latest month, much more than the 1.5% fall in May. The closure of key refining units and sudden changes to the oil import value chain has led to repeated volatility in the sector in 2019.
“The fall in petro products can be attributed both to internal issues as well as declining prices of crude oil, which makes imports cheaper under a stable exchange rate regime,” Madan Sabnavis, chief economist at CARE Ratings, said. Barring a two-month growth spree beginning March, sectoral output has contradicted every month in the current year.
The same was true across the energy space.
Crude oil production went down by 6.8% in June, compared to 6.9% in May, the highest margin of contraction in the past 12 months. In June, natural gas production also contracted by 2.1%, after registering zero growth in May.
However, coal output growth gained pace, rising by 3.2% in June, up from May’s growth of 1.8 per cent. Production had hit a high of 9.1%t in March.
The cement and steel sectors also saw their performance weaken in June. “The government spending has also been lower this quarter, which may explain why cement has turned negative this month – though there was the base effect here where growth was 14.2% last year,” added Sabnavis.
Steel output growth was slashed by more than half in June, with growth rate standing at 6.9%, down from 15.3% in May. Another sector indicating the health of construction and infrastructure development – cement – saw production contract by 1.5%, after rising by 2.8% in May. Growth had tapered off after hitting an 11-month high of 15.7% in March.
Electricity generation rose by 7.3% in June, slightly lower than 7.4% growth in May. Growth in the electricity sector had dipped to its lowest point in the last 71 months in January. A low growth in coal output had been blamed then. However, growth has steadily risen since then.
“The marginal core sector growth, combined with the contraction in both auto production and non-oil merchandise exports, suggests that the Index of Industrial Production growth would be muted at around 1 per cent in June 2019. Overall, there is limited visibility of broad-based improvement in the Indian industrial outlook. The core sector data further strengthens the likelihood of a repo rate cut in the August 2019 policy review,” Aditi Nayar, principal economist, ICRA, said.
Fertiliser production rose in June by 1.5%, after going down by 1% in May. The sector had grown four months out of the six in the current calendar year.
By arrangement with Business Standard.