High base effect, onset of monsoon among reasons for moderation in overall output growth, say experts. Pulled down by a high base effect despite a strong show from coal and electricity sectors, the country’s eight core industries output growth slid to a 20-month low at 4% in June. This latest reading — seen by some economists as a satisfactory growth —was lower than the core industries growth of 8.4% in June 2023 and upward revised growth of 6.4% in May 2024. For the first quarter (April-June 2024), the eight core industries output grew 5.7%, lower than 6% in the same period last fiscal, data released by Commerce and Industry Ministry showed. For the month under review, other than crude oil (-2.6%) and refinery products (-1.5%), all the other six industries recorded positive growth.
Power generation up
While coal sector grew robust 14.8% (9.8% in June 2023), electricity generation saw a 7.7% growth (4.2% in June 2023). Fertilizers output grew 2.4% (3.4%). Natural gas output grew 3.3% (3.5%). Refinery products output contracted 1.5% as against growth of 4.6% in June 2023. Steel sector output came in at 2.7% (21.3% in June 2023). The eight core industries — coal, natural gas, crude oil, refinery products, fertilizers, cement, steel and electricity — comprise 40.27% of the weight of items included in the Index of Industrial Production (IIP). Meanwhile, the Government has also now revised upwards the eight core industries output growth for March 2024 to 6.3%. Last month the reading for February 2024 was revised upwards to 7.1%. Previously, the reading for January 2024 was revised upwards to 4.1%. Prior to that, the reading for December 2023 was revised upward to 5%. Also, the Government had revised upwards the November 2023 core industries growth to 7.9%. The monthly readings for September 2023 and October 2023 were also revised upwards in earlier months.
Experts’ take
Aditi Nayar, Chief Economist and head-Research & Outreach, ICRA said that the core sector expansion slid to a 20-month low of 4% in June 2024, led by a moderation in growth or deepening contraction in five of the eight constituents, barring coal, fertilizers and cement, compared to May 2024. With the onset of the monsoon, electricity growth reverted back to single digits after two months, while remaining healthy at 7.7%. “With the dip in the core sector growth, we expect the IIP to post a rise of 3.5-5.0% in June 2024”, Nayar said. Madan Sabnavis, Chief Economist at Bank of Baroda, said that the strong growth in coal can be attributed to higher demand for power. Electricity growth at 7.7% was impressive reflecting both higher business activity and higher demand from households due to the heatwave conditions in several States in the first half of the month, Sabnavis said. Steel growth of 2.7% and cement of 1.9% was mainly due to high base of 21.3% and 9.9%, respectively, as well as muted Government spending ostensibly due to the elections on capex. This will reverse and pick up in the coming months, he added. “The IIP growth for June is expected to be around 4-5%,” Sabnavis said.
