Core sector growth slows to 19-mth low

Pulled down by a sharp decline in coal production and weak performance of electricity generation and petroleum refining industries, core sector growth fell to 19-month low of 0.4 per cent in June. The previous low was recorded in November 2015, when infrastructure sector output had declined by 1.3 per cent.

The dismal data are likely to mount pressure on the RBI to further cut key interest rates in its forthcoming monetary policy review on Wednesday. However, economists cautioned against reading too much into the core sector data, which have been quite erratic.
“Core sector data are so vo?l?a?tile that it is difficult to make sense of them,” said DK Jo?shi, chief economist, Crisil.

The core sector, which includes coal, crude oil, natur?al gas, refinery products, fert?ilisers, steel, cement and el?e?ctricity, had grown by 4.1 and 2.8 per cent in May and April, respectively, compared with year agao period.

There may be an issue of authenticity with the official data, but all is definitely not well with the industrial sector. The manufacturing PMI data for June too painted a grim picture.  Manufacturing growth slowed to a 4-month low in June on weak domestic demand, said the Nikkei Merkit PMI report. The agency attributed the slowdown to pre-GST blues.

“The slowdown occurred due to weak client demand, with order books up at a slight and softer pace. In ma?ny cases, businesses indicated that growth was held back as a reflection of water scarcity and the impending introduction of GST,” Poll?y?anna De Lima, economist at IHS Markit, had said while commenting on the data.

The coal output declined by 6.7 per cent in June, refinery products by 0.2 per cent, fertiliser by 3.6 per cent and cement by 5.8 per cent, as per the comme?r?ce ministry data on Monday.

Crude oil output rose to 0.6 per cent last month as against a decline of 4.3 per cent in June 2016. Natural gas output rose by 6.4 per cent. Steel production and power generation slowed to 5.8 per cent and 0.7 per cent in June this year from 8.8 per cent and 9.8 per cent in the same period last year, respectively.

Analysts said slow growth in key sectors would also have implications on the IIP as these segments account for about 41 per cent of the total factory output.