Core sectors’ output tanks for first time in 42 months

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Last Updated03/10/2024

Output levels in India’s core sectors slipped to a nine-month low in August, even as year-on-year growth slipped 1.8%, marking the first contraction in three and a half years.

India's core sector output declined to a nine-month low in August 2024, with a year-on-year contraction of 1.8%. This marked the first contraction in core sector growth in three and a half years.

Six of the eight core infrastructure sectors experienced year-on-year production declines. The fertilizer and steel sectors saw a deceleration in growth compared to July, with steel production registering the slowest pace of growth (4.5%) in 26 months.

Electricity generation hit a five-month low.
Refinery products reached a six-month low.
Coal output declined by 8.1%.
Electricity output dropped by 5%, the first contraction in 13 months.
Cement production fell by 3%, its worst performance in nine months.
Refinery products declined by 1% for the second time in three months.
Fertilizer production increased by 3.2%.
Natural gas production shrank 3.6%, marking the second consecutive month of contraction.
Crude oil output fell for the third straight month, with a 3.4% contraction.

The Index of Core Industries (ICI), which accounts for about 40% of the broader Index of Industrial Production (IIP), registered a value of 155.8 in August. This marked the third consecutive month of sequential decline, with a 4.2% drop compared to July.
In July, core sector output had grown by 6.1%, with only two sectors—crude oil and natural gas—registering contractions. August’s decline signals a slowdown in factory output, which had shown a 4.8% increase in July.

Economists attribute the slowdown to a base effect from last year’s 13.4% growth. Madan Sabnavis, chief economist at Bank of Baroda, estimates that industrial output growth will remain marginally positive in August at around 0.5%.
Aditi Nayar, chief economist at ICRA, forecasts a 1% rise in the IIP for August but warns that the late withdrawal of the monsoon may continue to affect core sector output in September.
Additionally, she pointed out that weak performance in cement and steel during July and August indicates a slowdown in construction activity in the second quarter of the year.