Core sector growth gains pace, marginally up 4.7% in April

4th June 2018

Sustained rise in cement production and a spurt in coal output led the combined output of the economy’s eight core sectors to grow at a marginally higher pace of 4.7 per cent in April as against 4.4 per cent in March.

The pace of growth had been sluggish over the past two months. The eight sectors comprising crude oil, natural gas, refinery products, fertiliser, steel and electricity, contribute about 40 per cent to the total industrial production.

In April, six sectors performed better than a month earlier. Double-digit rise in cement production continued to solidify overall growth for six straight months, rising 16.6 per cent as compared to 13.3 per cent in the previous month. Increased budgetary support for affordable housing, growth in rural economy and rise in infrastructure spend are expected to support cement demand in FY19 as well.

In April, the next-best performing sector, that is coal, saw output shoot up by 16 per cent. This is the maximum pace of growth in more than a year. “The low base of April 2017 pushed the expansion in coal output, which would support mining growth in that month. The weak performance of the coal sector in May-June 2017 suggests a moderate growth outlook for the coming two prints,” said Aditi Nayar, principal economist at ratings agency ICRA.

Despite the surge in the expansion of coal output, growth of electricity generation slowed to 2 per cent from 6 per cent in the previous month. “According to data released by the Central Electricity Authority, hydro electricity generation contracted 26 per cent in April 2018. Tyear over year (YoY) decline in reservoir levels suggests that hydro generation would continue to contract over the next two months,” Nayar said.

In energy, crude oil output continued to decline for the fifth straight month, albeit a slower pace in April. The sector saw a contraction of 0.8 per cent after 1.6 per cent contraction in March. With global crude prices firming up and the government in hot water over rising petrol prices back home, experts say crude oil production should go up over the coming months.

Natural gas production shot up by 7.4 per cent after 0.8 per cent growth in March when the sector had reversed the decline which is ongoing since September 2017. As a result of the changes in both the sectors, growth in refinery product output rose to 2.7 per cent, up from March’s 1.1 per cent.

Steel, the other major pillar of the construction sector, saw production slow down in April. It rose by 3.5 per cent, down from 4.7 per cent in March.

Experts suggest favourable domestic demand and remunerative prices at home and abroad are likely to bolster production growth in the near term, although the risk of trade wars could affect export and import.

“Cement and steel production in April 2018 can result in a nearly stable IIP for infrastructure/construction goods.” said Devendra Pant, chief economist at India Ratings and Research.

Data issued by the commerce and industry ministry on Tuesday showed cumulative growth for the core sector was 4.3 per cent in 2017-18, lower than the 4.8 per cent growth in 2016-17.

Source: BUSINESS STANDARD