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Core sector output shrinks in August

Core sector production last showed a contraction in February during peak covid

Core sector output shrinks in August
[Source photo: Chetan Jha/Press Insider]

Core sector output, which accounts for about two-fifths of India’s industrial production, shrank in August as six of eight core sectors reported a decline, government data showed.

The index of eight core industries fell 1.8% in August when compared with a 6.1% increase in July, the commerce ministry’s provisional data released on Monday showed.

In August last year, the output of the eight core industries—coal, steel, crude oil, electricity, cement, fertilizers, refinery products, and natural gas—rose sharply by 13.4% year-on-year.

Core sector production last showed a contraction in February during peak covid.

This August, production of coal, crude oil, natural gas, cement, petroleum products, and electricity was lower when compared with August last year.

Fertilizer and steel production, however, increased during the same month.

Over the longer period from April to August, most industries produced more than they did in the same period last year, showing overall growth.

The only exception was crude oil, which saw a decrease in production during this time.

Stating that the output of core industries posted a sombre 1.8% YoY contraction in August 2024, the first instance of a decline in as many as 42 months, Aditi Nayar, chief economist at ICRA said, “Excess rainfall impacted mining activity, with the output of coal, crude oil, and natural gas declining, while also leading to a contraction in electricity generation in the month.”

Nayar further added that the decline in these sectors was accentuated by an elevated base, with a deficient rainfall in August 2023 supporting the output of these sectors in that month.

She said, “Excess rainfall and an adverse base are also likely to have weighed upon the output of the cement and the steel sectors, with the former reporting a YoY contraction and the latter witnessing the slowest growth in 26 months. The performance of these sectors during July-August 2024 suggests that construction activity weakened in the first two months of Q2 FY2025.”

The rating agency estimated that given these trends, ICRA expects IIP growth to slow down sharply to more than 1% in August 2024 from 4.8% in July 2024. Core sector output may remain lacklustre in September 2024 given the late withdrawal of the monsoon, before normalising in Q3 FY2025.

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