The expansion in production of key infrastructure sectors fell to a 20-month low of 4% in June, mainly due to a slowdown in growth of five of the eight industries during the month, according to data released by the commerce ministry. The core sector output had grown 6.4% in May, and 8.4% in June 2023.
On a sequential basis, too, the core sector production declined by 3.2%. Typically, June witnesses a contraction in output compared to May, but the decline in 2024 (between the two months) is much higher compared to a 1.7% fall seen on average in the past 13 years.
In June, the five sectors that showed a decline in growth as against May were: crude oil, natural gas, refinery products, steel and electricity. In fact, the production of crude oil and natural gas contracted by 2.6% and 1.5%, respectively, during June.
“With the onset of the monsoon, electricity growth reverted back to single digits after two months, while remaining healthy at 7.7%,” said Aditi Nayar, chief economist, Icra.
Coal’s output growth, however, rose to 14.8% in June from 10.2% in May. The output growth of fertiliser was up 2.4% in June from (-)1.7% in the previous month, and that of cement was up 1.9% as against (-)0.6% in May.
The growth in coal production was at an 8-month high in June, and this was because electricity generation through coal was up by 9.4% YoY during the month. Coal India is projected to produce around 838 million tonne of coal in FY25, against 774 million tonne it produced in the last financial year, which may push coal output’s growth higher in the coming months, said ICICI Bank in a report.
Madan Sabnavis, chief economist, Bank of Baroda said: The low steel growth of 2.7% and cement of 1.9% was mainly due to high base of 21.3% and 9.9% respectively as well as muted government spending ostensibly due to the elections on capex. “This will reverse and pick up in the coming months,” he said.
Also, the tepid growth in fertiliser output, a result of existing inventories used for the kharif crop, is expected to pick up from July when sowing peaks, say analysts.
A lacklustre core sector print for June may keep the IIP growth for the month between 4-5%, say economists. In May, IIP had growth 5.9%.
In April-June FY25, the core sector growth averaged 5.7%, 30 basis points lower than the corresponding period of last year.
Source:financialexpress.com