At 0.2%, June core growth hits 50-month low

India’s core sector growth slumped to its lowest in more than four years in June, reflecting the economic slowdown and the lack of pickup in investment. The index of eight core industries rose 0.2% in June, down from 4.3% in May and 7.8% in the year earlier, data released by the government showed, marking the slowest increase since the 0.5% contraction in April 2015.

The base effect of high growth in June 2018 magnified the slowdown. For May, the government revised core sector growth downward to 4.3% from 5.1%. The sharp slide in the performance of steel and cement underlined the lack of investment.

“The weak data continues to restate the overall slowing economic conditions which can be partly explained by a strong adverse base effect,” said Upasna Bhardwaj, economist at Kotak Mahindra Bank.

The eight infrastructure industries of coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity have a 40.27% weight in the index of industrial production (IIP). Industrial growth was 3.1% in May.

“Overall, there is limited visibility of a 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,” said Aditi Nayar, principal economist at ICRA.

April-June core sector growth was 3.5% against 5.5% in the same period last quarter. The data suggests the first quarter GDP growth may not show much improvement from 5.8% growth recorded in the March quarter.

“Growth in June is symptomatic of a certain degree of stagnation that has set in Indian industry,” said Care Ratings chief economist Madan Sabnavis.

Cement output declined 1.5%. Steel production growth slowed to 6.9% in June from 15.3% in the month before. Fertiliser production witnessed a trend reversal and grew 1.5%, compared with sustained contraction in the previous two months, induced by the seasonal factor with the start of sowing. Electricity generation rose 7.3% while coal output picked up to 3.2% in June. Crude oil, natural gas & refinery growth contracted 6.8%, 2.1and 9.3%, respectively.

The temporary shutdown of ONGC Mangalore Petrochemical Ltd for maintenance adversely impacted exports of petroleum products last month. Reliance Industries Ltd’s Jamnagar refinery also experienced a routine maintenance-related disruption in June, leading to a contraction in exports for the first time in nine months.

“The deceleration in steel and cement segment growth probably reflect the narrative of weak demand in auto and construction segments, but is also caused by high effect. The core sectors are a significant component of the IIP, and suggest low growth in that Index as well,” said Axis Bank chief economist Saugata Bhattacharya.