Likely to pull down IIP growth for June, say economists

After a strong showing in the first two months of this fiscal, the growth of eight core industries slowed sharply in June, at just 0.2 per cent. The eight core industries — coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity — had grown 7.8 per cent in June 2018. In April 2019, the core sector output had grown 6.3 per cent, and had remained a robust 5.1 per cent in May. For June, four sectors — crude oil (-6.8 per cent), natural gas (-2.1 per cent), refinery products (-9.3 per cent) and cement (-1.5 per cent) — saw a sharp contraction.

The performance is “symptomatic of a certain degree of stagnation that has set in Indian industry,” said MadanSabnavis, Chief Economist, CARE Ratings. “Overall industrial growth in June is unlikely to be significant and will at best be slightly positive. A high base effect of 7 per cent last year will push it more in the negative zone this year. Given the fall in production in the auto segment and the virtual flat core sector growth, IIP numbers will be impacted negatively in June,” he said. AditiNayar, Vice-President and Principal Economist, ICRA Ltd, said that the June performance was marred by the sharp slide in the refinery products, and cement sectors compared to the previous month.

A slowdown in government spending prior to the Budget (in June) may have contributed to the weakening performance of cement in June, she said. “The marginal core sector growth, combined with the contraction in both auto production and non-oil merchandise exports, suggests that IIP growth will be muted at around one per cent in June. Overall, there is limited visibility of a broad-based improvement in India’s industrial outlook. The core sector data further strengthen the likelihood of a repo rate cut in the August policy review,” she added. For June, electricity did well, growing 7.3 per cent followed by steel (6.9 per cent). Coal at 3.2 per cent and fertilisers at 1.5 per cent were the other segments to witness positive growth.