Core Sec­tor Growth Slows in June, Up 0.4%

The Economic Times - - Economy: Macro, Micro & More - Our Bu­reau

New Delhi: In­dia’s in­fra­struc­ture sec­tor growth slowed to a 19month low in June, strength­en­ing the case for an in­ter­est rate cut to sup­port the econ­omy as in­fla­tion fell to record lows.

Re­duced out­put of ce­ment, elec­tric­ity and coal slowed the pace of ex­pan­sion of the coun­try’s eight in­fra­struc­ture sec­tors in June to 0.4%, data re­leased on Mon­day showed. The core sec­tor had ex­panded 4.1% in May and 7% in June last year, in­di­cat­ing that high base of last year has also muted the growth.

The eight in­fra­struc­ture sec­tors of coal, crude oil, nat­u­ral gas, re­fin­ery prod­ucts, fer­tilis­ers, steel, ce­ment and elec­tric­ity con­sti­tute 40.27% of the to­tal in­dus­trial pro­duc­tion. Muted core sec­tor could fur­ther dent in­dus­trial growth that was placed at 1.7% in May. The statis­tics of­fice will re­lease in­dus­trial pro­duc­tion num­bers for June on Au­gust 11.

“Over­all, the head­line num­ber is not show­ing any sig­nif­i­cant signs of im­prove­ment. Most in­di­ca­tors re­main muted,” said Upasna Bhard­waj, econ­o­mist at Ko­tak Mahin­dra Bank.

Sub­dued per­for­mance of the core sec­tor com­bined with re­tail in­fla­tion fall­ing to an all-time low firmed up ex­perts’ ex­pec­ta­tions of a 25 ba­sis points rate cut by the Mon­e­tary Pol­icy Com­mit­tee when it meets on Au­gust 1-2.

Con­sumer in­fla­tion fell to 1.54% in June, the low­est in the cur­rent in­dex that started in 2012 and less than 2.18% in May. “Over­all, the bal­ance is tilted to­wards a 25 bps repo rate cut in the next bi-monthly meet­ing of the MPC. The de­ci­sion is un­likely to be unan­i­mous,” said Aditi Na­yar, prin­ci­pal econ­o­mist at ICRA. “We ex­pect mon­e­tary ac­com­mo­da­tion, a 25 ba­sis points rate cut,” Bhard­waj said. Coal Crude Oil Nat­u­ral Gas POL Fer­til­iz­ers Steel Ce­ment Elec­tric­ity Over­all

de-stock­ing by some cos caused slow fer­tiliser growth

Mon­soon to fur­ther slow in­fra, min­ing ac­tiv­ity

As per data re­leased by com­merce and in­dus­try min­istry on Mon­day, ce­ment pro­duc­tion de­clined 5.8% in June from 0.4% fall in May. Coal out­put nose­dived 6.7% from a 3.2% de­cline in May. Re­fin­ery pro­duc­tion de­clined 0.2%. Crude oil out­put rose a mea­gre 0.6% in June and elec­tric­ity pro­duc­tion was up 0.7%. Only nat­u­ral gas and steel showed a sharp rise in pro­duc­tion in June at 6.4% and 5.8%, re­spec­tively.

“The con­sid­er­able dip in core sec­tor growth in June rel­a­tive to the pre­vi­ous month was driven by an un­favourable base ef­fect that con­trib­uted to the wors­en­ing con­trac­tion in out­put of coal and ce­ment, and the sharp de­te­ri­o­ra­tion in the per­for­mance of elec­tric­ity gen­er­a­tion and re­fin­ery out­put,” Na­yar said.

An un­favourable base ef­fect and in­ven­tory trim­ming prior to on­set of GST may con­trib­ute to a con­trac­tion in in­dus­trial out­put in June 2017, in stark con­trast to the 8.9% ex­pan­sion in June 2016.

GST led

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