Key infra sectors growth slows to 50-mth low in Jun
DATA RELEASED BY CAG SHOWED THAT DURING THE FIRST QUARTER THE GOVT HAD EXHAUSTED 61.4% OF ITS FULL-YEAR FISCAL DEFICIT TARGET
NEW DELHI: The Indian economy threw up more bad news on Wednesday, as data showed eight infrastructure sectors, which constitute 40.27% of the index of industrial production (IIP), decelerated to a 50-month low of 0.2% in June.
The weak performance may pave the way for another round of rate cuts by the monetary policy committee of the Reserve Bank of India (RBI) at its meeting on August 7.
Four out of the eight sectors contracted in June, with output of refinery products with the highest weight of 28% within the core sector contracting by 9.3%. This is apart from declines in production of crude oil (-6.8%), natural gas (-2.1%), and cement (-1.5%). The only sector that continues to grow at a robust pace is electricity generation (7.3%).
The Indian economy is going through a period of consumption and investment slowdown, with gross domestic product (GDP) growth in the March quarter slowing to a five-year low of 5.8%. Annual GDP growth slowed to 6.8% in the year ended March 31 from 7.2% in the previous year.
The International Monetary Fund has reduced its growth projection for India in 2018-19 by 30 basis points (bps) to 7%, expecting weaker domestic demand.
“The growth in June is symptomatic of a certain degree of stagnation that has set in Indian industry. Given the fall in production in the auto segment and virtual flat core sector growth, IIP numbers will be impacted negatively in June,” said Madan Sabnavis, chief economist at Care Ratings Ltd.
India’s merchandise exports contracted 9.71% in June and, while releasing the data earlier this month, commerce secretary Anup Wadhawan had attributed it to a temporary shutdown of ONGC’S Mangalore Petrochemical Ltd’s Jamnagar refinery for maintenance, adversely affecting exports of petroleum products. This could have been reflected in the core sector data as well.
“The effects of the shutdown of the Jamnagar refinery are likely to abate by mid-july,” Wadhawan had said on July 15.
Data separately released by the Controller General of Accounts showed that during the first quarter (April-june) the central government had exhausted 61.4% of its full-year fiscal deficit target. This compares with 68.7% during the same period a year ago.
In absolute terms, the fiscal deficit or gap between expenditure and revenue was ₹4.32 lakh crore during at June-end, as per the data released by the CGA on Wednesday.
The government estimates the fiscal deficit to be at ₹7.03 lakh crore during 2019-20.
In the absence of a fiscal stimulus, most analysts believe monetary policy needs to do the heavy lifting to pump up economic growth. The RBI cut policy rates for the third consecutive time in June adding up to a cumulative 75bps and is expected to cut rates yet again next month, given the benign inflation trajectory.
Retail inflation grew 3.18% in June compared to 3.05% a month ago, while factory output, measured by IIP decelerated from an upwardly revised 4.3% in April to 3.1% in May.
“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, Icra Ltd.