India’s core sector growth eased to 6.3% in May, against the revised figure of 6.7% for the previous month, due to further contraction in the cement industry even as coal and electricity recorded higher output, according to the latest government data released on June 28.
"A combination of factors, including the heatwave over parts of the country and the phased Parliamentary Elections, could have curtailed activity and execution in some sectors," said Aditi Nayar, chief economist, Icra.
The combined Index of Eight Core Sector Industries measures the output of key sectors - cement, coal, crude oil, electricity, fertilisers, natural gas, refinery products and steel - which have a 40% weight in the Index of Industrial Production (IIP).
The slight moderation in core sector growth is likely to be a drag on industrial expansion, according to experts.
"We expect IIP growth print at 4-5% in May 2024," Nayar said.
Sequentially, growth in the index of eight core industries representing infrastructure output was up 3.7%.
Mixed performance
Three of the eight industries contracted in May, compared with two facing contraction in the previous month, with growth easing for three others.
On the other hand, electricity recorded a 12.8% jump compared with 10.2% in April. Coal sector output expanded by 10.2% from 7.5% earlier.
Experts indicate the heat wave likely played its part in growing electricity and coal demand.
"Power sector growth of 12.8% was mainly due to the heatwave, which led to higher demand. Higher power generation also led to higher growth in mining as coal production increased," said Madan Sabnavis, chief economist, Bank of Baroda.
Cement and fertilisers fell further into contraction in May to -0.8% and -1.7% respectively.
This is the fifth consecutive month of contraction for fertilisers and second for cement.
The crude oil sector also contracted in May after recording positive growth for four months.
"The output of coal, crude oil, and refinery products were up by just 7.9%, 3.0% and 10.0% than the pre-COVID level, respectively. On the whole, both in growth and level terms, it appears that a broad-based recovery on a continued basis is some distance away," said Ind-Ra economists Paras Jasrai and Sunil K Sinha.
The data comes just days before the government presents its first budget.
Experts indicate that the government will likely continue its push on capex, which is expected to further impetus infrastructure growth.
"States are expected to frontload their capex (like last year). This would provide succour to the construction and infrastructure sectors. Factoring in all of the above, Ind-Ra expects core sector growth to be around 6% in June 2024," its economists noted, pointing out the tax devolution to states in June 2024.
One of the demands of the industry is to increase capex spending to 25% of the previous year spend of Rs 9.5 lakh crore, compared with 17% in the interim budget.
India’s growth prospects are improving as the Reserve Bank of India recently revised the FY25 growth forecast upward to 7.2% from 7% earlier.
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