For the first time in 42 months, core sectors’ output tanked in August

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.

Six of eight infrastructure segments witnessed a year-on-year contraction in production, while fertilizers and steel output grew at a milder pace than July, when core sectors’ output rose 6.1%. In fact, the 4.5% uptick in steel production was the slowest in 26 months.

In absolute terms, electricity generation was at a five-month low in August, while refinery products were at a six-month low. Coal and electricity output recorded their first contraction in at least 13 months, declining 8.1% and 5%, respectively, in August.

Cement production fell 3%, the worst performance in nine months, while refinery products declined 1%, the second decline in three months. Fertilizer output grew 3.2%.

The Index of Core Industries (ICI), which constitutes about 40% of the broader index of India’s industrial output (IIP), stood at 155.8 in August, marking a third consecutive month of sequential decline, and was 4.2% below July levels. In July, the ICI was up 6.1% on a year-on-year basis, with just two sectors reporting a contraction — crude oil and natural gas.

Industrial output growth had been estimated at 4.8% in July, mildly higher than 4.7% recorded in June, but the core sectors’ trends in August suggest weaker factory output levels in the month.

“The core sectors’ performance has been skewed due to the base effect of 13.4% growth recorded last year,” said Bank of Baroda chief economist Madan Sabnavis, who expects industrial output growth to be marginally positive in August at around 0.5%.

Aditi Nayar, chief economist at ICRA, who expects the IIP to have risen around 1% in August, reckoned that the late withdrawal of the monsoon may continue to weigh on core sectors’ output in September.

Ms. Nayar noted that the weak performance of cement and steel sectors during July and August suggests that construction activity weakened in the second quarter of this year.

Natural gas production shrank 3.6%, marking the second successive month of contraction. Crude oil output fell for the third straight month, with the pace of contraction deepening to 3.4%.