India’s Core Industries Contract The Most In Fourteen Years In September

India’s core sectors, ranging from cement to steel and energy, contracted the most in fourteen years in September, adding to a list of indicators suggesting that economic growth remained weak in the July-September quarter.

The Indian economy grew at a six-year low pace of 5 percent in the April-June 2019 quarter. High frequency indicators suggest that growth since then may have weakened even further due to weak demand and constrained financial conditions.

The index of eight core sector industries provides evidence of this weakness.

The index fell 5.2 percent in September according to data by the ministry of commerce and industry released on Thursday. On a cumulative basis, the index grew by 3.4 percent from April to June 2019 compared to a growth of 5.5 percent for the same duration last year. It deteriorated further from July to September 2019, contracting by 0.8 percent compared to a growth of 5.4 percent in the same quarter of the previous year.

The contraction is the steepest in the ongoing and even in the previous series, said Sunil Kumar Sinha, economist at India Ratings and Research.

Watch | Core sector output contraction most in 14 years.

Almost all sectors within the index saw a contraction.

• Coal output growth contracted by 20.5 percent in September compared to a contraction of 8.6 percent in August.
• Crude oil continued to contract by 5.4 percent after a similar contraction in the previous month.
• Natural gas contracted to 4.9 percent in September compared to 3.9 percent in August. This was the sixth straight month of contraction.
• Refinery products, which have the highest weightage in the core sector index at 28 percent, contracted by 6.7 percent in September compared to growth of 2.6 percent in August.
• Fertilisers was the only component to register growth, growing by 5.4 percent as against a growth of 2.9 percent last month.
• Steel contracted by 0.3 percent in September after growing by 5.1 percent in August.
• Cement output contracted by 2.1 percent in September after declining by 5.1 percent the previous month.
• Electricity contracted by 3.7 percent in September against a contraction of 0.9 percent.

Core sector industries contribute to nearly 40 percent of the Index of Industrial Production, data for which will be released next week. As core industries have high weightage in the IIP series, the September 2019 factory output growth is likely to be dismal as well, Sinha of India Ratings and Research said.

Heavy rainfall in September 2019 in many states is likely to have contributed to slack in construction activities, leading to the contraction in output of cement and steel, said Aditi Nayar, principal economist at ICRA. As a result, broader economic growth may continue to weaken as well.

“We anticipate that GDP and GVA growth may dip further in Q2 FY20, despite a favourable base effect and the cushion provided by lower raw material costs,” Nayar added.