Core sector output eases to 4% in June; Q1FY25 growth lower at 5.7%

Core sector growth for June

India’s core sector growth eased to 20-month low of 4 percent in June, from 6.4 percent in the previous month, owing to a slowdown in five of eight industries and an unfavourable base.

The first quarter growth was also lower at 5.7 percent compared with 6 percent in the first quarter of the previous year.

Core sector had expanded 8.4 percent in June 2023.

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).

While coal, cement and fertilisers witnessed a pick up in activity compared with the previous month, the other five industries witnessed a slowdown with two sectors—crude oil and refinery products—witnessing a contraction.

"With the onset of the monsoon, electricity growth reverted back to single digits after two months, while remaining healthy at 7.7 percent," said Aditi Nayar, chief economist, Icra.

Coal retained its double digit growth for second month in a row, rising 14.8 percent in June compared with 10.2 percent in the previous month. On the otehr hand, cement grew at 2.7 percent from 1.6 contraction witnessed in May.

Steel slowed sharply to 2.7 percent from 6.8 percent in the previous month, and electricity growth nearly halved to 7.7 percent.

Sequentially, the eight core industries contracted 3.1 percent.

Economists noted that slower core growth is also likely to weigh down on industrial production numbers. Icra pegs Index of Industrial Production growth between 3.5-5 percent for June.

Industrial output was up 5.9 percent in May.

"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 coming months," said Madan Sabnavis, chief economist, Bank of Baroda.

The Indian economy is likely to perform better than earlier expected, carrying the momentum from the previous fiscal.

"The additional tax devolution installment to the states in June 2024 would lead to a pickup in states capex, going forward. This along with the union government capex FY25 budget proposals would provide succour to the construction and infrastructure sectors," said Paras Jasrai, senior analyst, India Ratings and Research.

Reserve Bank of India recently revised India’s growth forecast upward to 7.2 percent from 7 percent expected earlier.

The International Monetary Fund also expects the economy to grow at 7 percent compared with 6.8 percent projected earlier.

The Economic Survey released on July 22 pegged growth at 6.5-7 percent.

The National Council of Applied Economic Research in its monthly economic outlook noted that growth could inch higher than 7 percent in the current fiscal.

“Based on the momentum in the high frequency indicators; normalised monsoon; a relatively benign global outlook; and receded electoral uncertainty, both in India and in the rest of the world, growth will likely turn out to be higher than 7 percent, and possibly closer to 7.5 percent,” said Poonam Gupta, director general, NCAER.

The government kept its capital spending target unchanged at Rs 11.11 lakh crore in the Bugdet presented on July 23.