Growth in the eight core sectors of India’s economy contracted 5.8 per cent in October 2019, continuing a trend of unprecedented decline that started in September. Overall growth has been hit by declining production in most core sectors, especially a steep drop in electricity production, according to data shared by the Commerce Ministry Friday.
Core sector growth in September had declined 5.1 per cent — a drop that analysts had said has not been witnessed so far.
The growth of the country’s eight core sectors — coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity — is a lead indicator of the monthly industrial performance. These sectors had grown by 4.8 per cent in October 2018, and their cumulative growth during financial year 2018-19 was 4.4 per cent.
Indicative of broader slowdown facing the economy
Contraction in eight key infrastructure sectors of the economy in October, which are lead indicators for performance of the industrial sector, reflect the broader slowdown facing the Indian economy. October being the second successive month when growth in these sectors has been negative is an indication of lower level of infrastructure activity in the country.
The growth in April was recorded at 5.2 per cent —the highest this fiscal so far —before it began to decelerate.
Electricity production, which makes up for nearly 20 per cent of the Index of Industrial Production (IIP), took a major hit in October, with production dropping 12.4 per cent over the corresponding month a year ago.
This is the third consecutive month that electricity production has contracted, and the first month this financial year when production has dropped by over 10 per cent.
Production in this sector during August and September had declined 0.9 per cent and 2.6 per cent, respectively. The coal sector, which makes up around 10 per cent of the index, also declined steeply by 17.6 per cent, according to the Ministry’s data.
Production in refinery products, which makes up nearly 30 per cent of the IIP, registered a growth of around 0.4 per cent over October last year.
Production in natural gas and cement segments also declined, registering a de-growth of 5.7 per cent and 7.7 per cent, respectively, from October last.
Steel production — which accounts for 17.92 per cent of IIP — declined 1.6 per cent in October. The sector had registered growth of 5.1 per cent in August and 13.3 per cent in April.
The crude oil segment showed a decline of 5.1 per cent last month. However, the fall in production has slowed since April, when contraction in this sector was more 6 per cent — a trend that continued until June.
Fertilisers, which accounts for nearly three per cent of the index, was the only segment registering double-digit growth. Production in this sector in October was up 11.8 per cent — the highest so far this financial year.
The core sector growth in October is the “lowest” in the 2011-12 base series, said India Ratings and Research chief economist Devendra Pant.
“The decline witnessed in electricity is mainly due to lower power demand in major industrial states. It is a combination of weak industrial performance and extended monsoon that has impacted household and industrial consumption,” he said.
“The fact that electricity has gone into the negative territory is an indicator of low industrial activity,” said Madan Sabnavis, chief economist, Care Ratings.