Output at India’s eight core infrastructure sectors climbed by a combined 12.1% in August, the fastest pace in 14 months, with five of them reporting double-digit growth, spurring hopes of a healthy uptick in industrial production last month.
This is the second month in a row that all eight core sectors, which constitute about 40% of the Index of Industrial Production (IIP), recorded an uptick, after a 14-month streak of uneven trends among the sectors.
On a sequential basis, provisional core sector output as measured by the Index of Core Industries (ICI) was 2.5% over July’s levels – the first such uptick in three months, with the index logging its highest reading since May. The core sectors had collectively grown 8.4% in July, when IIP growth hit a five-month high of 5.7%.
In August, cement output grew 18.9%,, the largest uptick since November 2022. Deficient rains also lifted coal production and electricity generation, which grew 17.9% and 14.9%, respectively, their fastest rates of expansion in 14 months.
“A truant monsoon helped to push up core sector growth to a robust 12.1% in August 2023,” said Aditi Nayar, chief economist at rating firm ICRA. “Given the uptick in the core sector growth, as well as healthy performance of high frequency indicators such as auto output, GST e-way bills, rail freight, etc., we forecast the IIP to expand by 9%-11% in August,” she reckoned.
Steel production rose 10.9% last month, the slowest pace amid a 10-month streak of double-digit growth, while natural gas output grew 10%, the most since February 2022. Refinery products expanded by 9.5%, which was also the highest pace in 14 months.
Crude oil output grew 2.1% for the second successive month after a contractionary streak between May 2022 and June 2023. However, output levels were 0.6% below July. Coal and steel were the only other sectors to record a sequential decline, dropping 1.5% and 0.8%, respectively, from July’s levels.
Fertilisers was the only sector to record the slowest growth in at least a year, rising 1.8% in August, compared with 3.3% in July. However, on a month-on-month basis, fertiliser production was up 1.14%.
“While higher cement production reflects demand from infrastructure sectors, power generation saw a massive and unusual growth in August due to a severe rainfall deficiency in large parts of the country and the consequent higher power demand from the residential and agricultural segments,” pointed out Suman Chowdhury, chief economist and head of research at Acuite Ratings and Research.
“When compared with the pre-COVID level of February 2020, India’s core sector output is now 17% higher and August’s numbers suggest the recovery in infrastructure industries is getting broad-based, which is a good sign for the economy,” India Ratings economists Paras Jasrai and Sunil Kumar Sinha noted.
India Ratings expects core sector output to grow about 8% in September, owing to “stable progress in economic activity supported by the festive demand”.
COMMents
SHARE