August's industrial output falls, first since April 2019

Last Updated: Tue, Oct 01, 2019 10:49 hrs
Real_Estate_Infrastructure

New Delhi: The output of India's eight major industries contracted in August - for the first time since April - by 0.5 per cent from a growth of 2.7 per cent in July and 4.7 per cent in the same month last year.

The eight core industries - coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity - comprise 40.27 per cent of the weight of items included in the index of industrial production (IIP).

As per the data furnished by the Ministry of Commerce & Industry, the cumulative growth in April-August period of FY20 was 2.4 per cent compared with 5.7 per cent reported for the same period of the last financial year.

On a sector-specific basis, the refinery output, which has the highest weightage of 28.03, rose by 2.6 per cent in August compared with the same month of the last financial year.

However, electricity generation, which has the second highest weightage of 19.85, contracted by 2.9 per cent. Steel production, the third most important component with a weightage of 17.91, was up 5 per cent during the month under review, while coal mined, with a 10.33 weightage, was down by 8.6 per cent.

Extraction of crude oil, which has a weightage of 8.98, declined by 5.4 per cent during the month. The sub-index for natural gas output with a weightage of 6.87 edged lower 3.9 per cent.

Furthermore, cement output, which has a weightage of 5.37, decreased by 4.9 per cent, whereas fertiliser production, which has the least weightage of 2.62, increased 2.9 per cent in August.

"This is first contraction in core infrastructure output since April 2019, suggesting the weak demand conditions. All eyes are on festival demand to push industrial growth," said Devendra Kumar Pant, Chief Economist and Senior Director, Public Finance, India Ratings & Research (Fitch Group).

"The MPC will take note of weak demand, falling growth and low inflation in its monetary policy review on October 4, 2019. Ind-Ra expects a rate cut in October monetary policy review, however, the extent of cut could depend on the assessment of growth impact of policy measures announced by the government in past few weeks."

ICRA Principal Economist Aditi Nayar said: "The performance of the core sectors in August 2019 was disappointingly weak, with a broad-based deterioration in six of the eight constituents and as many as five sectors recording a YoY contraction in that month."

"However, the turnaround in refinery products, which is the largest constituent of the core sector, and a small uptick in the growth of fertilisers prevented a deeper contraction in the growth of the core sectors in August 2019," she added.