Core sector growth slows to 0.1% in Oct on high base effect
NEW DELHI: Growth in the eight infrastructure sectors slowed to 0.1% in October, dragged down by weak oil and electricity production, data released by the commerce and industry ministry on Wednesday showed.
The eight infrastructure sectors expanded by 8.7% in October last year.
Expressing concern over the core sector data, economists said that the dismal growth could mean that industrial output growth would also be lacklustre. The eight core industries hold 40.27% weight in the Index of Industrial Production (IIP) and are seen as critical for the revival of industrial production in India.
“While this is a sign of weakening activity, the high base effect has also played a role as growth was 8.7% last year. Hence, given that growth moderated from November last year, we may expect a better performance from the core sector,” Madan Sabnavis, chief economist at Bank of Baroda, said.
While petroleum refinery production, which has the highest share in the core sector data, declined by 3.1%, crude oil production and natural gas production dipped by 2.2% and 4.2%, respectively. Growth in electricity generation was little changed at 0.4% last month from a year earlier. “While crude oil and natural gas output have declined consecutively for five and four months, respectively, the output in refinery products and cement sectors contracted for the first time after a gap of 18 and 20 months, respectively. The spell of unseasonal rain in October may have impacted the cement and electricity sectors. Even the momentum (month-on-month seasonally adjusted growth) turned negative as the core sector output in October came in at 2.2% lower than in September. This points toward the fragility of the ongoing recovery,” India Ratings economists Sunil Kumar Sinha and Paras Jasrai said.economists pointed out that coal was the only industry within the group that registered a growth of 4.6% even though the base effect was high at 14.7%, in a sign of better demand from the industry as electricity production growth was also low.
“Fertilizer production was up at 5.4% as we are in the midst of rabi sowing, and demand would be steady. Steel production was up by 4%, while cement fell by 4.3%. Government capex has been the driving factor here. Cement has declined due to the high base effect of 14.6% registered last year,” Sabnavis added.
With sustained capex support from the state and union government, the output in steel and cement sectors is expected to do well in the coming months, India Ratings said, adding that it expects the core sector to grow at around 7% from a year earlier in November.