India's core sector output growth slows to six-month low of 4.5% in July

The growth in these eight sectors witnessed double digits growth in May and June at 19.3% and 13.2%, respectively

The output of India’s eight infrastructure industries decelerated to a six-month low of 4.5 per cent year-on-year (y-o-y) in July as compared to a double-digit growth in June, data released by the Department for Promotion of Industry and Internal Trade (DPIIT) on Wednesday showed.

In July last year, the core sector growth was at 9.9 per cent. The slower y-o-y growth can also be attributed to a normalisation of the base effect caused by the coronavirus pandemic, economists said.

The growth in these eight sectors witnessed double digits growth in May and June at 19.3 per cent and 13.2 per cent, respectively. 

However, the growth faltered on a sequential basis, falling 2.29 per cent from June.

“Normalisation of the base effect has resulted in softening of core sector growth to 4.5 per cent in July from the double-digit growth recorded in the previous two months. It is important to note that the core sector output has expanded by 6.1 per cent when compared with July 2019, reflective of continued improvement over the pre-pandemic level,” Rajni Sinha, chief economist at Care Ratings said.

The eight sectors -- coal, steel, cement, fertilisers, electricity, natural gas, refinery products, and crude oil -- comprise two-fifths of India's total industrial production. Data released by the industry department on Friday showed that barring crude oil and natural gas, the remaining six sectors witnessed a positive growth.

Production of coal, steel, refinery, fertiliser, electricity and cement witnessed 11.4 per cent, 5.7 per cent, 6.2 per cent, 6.2 per cent, 2.2 per cent, and 2.1 per cent respectively in July, compared with last year. Sluggish growth in cement and electricity can be attributed to a slowdown in construction activity during monsoon, economists said.

Crude oil and natural gas output witnessed a degrowth of 3.8 per cent and 0.3 per cent, respectively.

“Capital expenditure by the central government and new investment projects announced data in the current fiscal have been encouraging,” Sinha said, adding that the improving investment scenario in the economy bodes well for the core sector performance in the coming months.

Sunil Kumar Sinha, principal economist at India Ratings said that the ongoing recovery has still a long way to go because the output of some of the core segments is still lower than the pre-pandemic level. 

“The coal output despite registering double digit growth in July 2022 is still only 77.6 per cent of the pre-Covid production level (February 2020). Even the output of the cement sector is only 98 per centof the pre-Covid level. Additionally, on a seasonally adjusted month on month basis, the core sector output in July 2022 shows a contraction of 1.2 per cent over June 2022. The core sector output has now declined sequentially for three consecutive months. However, Ind-Ra expects the core sector to grow around mid-single digits in August 2022,” Sinha said.