India's core sector growth down to 19-month low of 1.8% in January

The first month of 2019 saw growth in the eight core sectors of the economy crash to a 19-month low at 1.8 per cent, slipping below the 2.8 per cent growth in December.

Core sector growth continued to go down for the third straight month in January, as the two largest contributing sectors of electricity and refinery products, remained in the negative zone.

Data released by the commerce and industry ministry on Saturday showed that the eight segments — coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity — cumulatively grew 4.5 per cent in April-January of the current financial year, remaining higher than the 4.1 per cent growth in the corresponding period of FY18.

Contributing 40 per cent to the total industrial production, output of the core sectors was brought down by the sudden contraction in electricity generation by 0.4 per cent in January, down from a 4.4 per cent rise in December.

“In fact, the electricity sector growth in January is lowest in the last 71 months. Last time electricity sector witnessed contraction was in February 2013,” Devendra Kumar Pant, Chief Economist at India Ratings & Research, said. This has come as a surprise for economists and a low growth in coal output has been blamed.

Coal output has steeply fallen since October, and remained only 1.7 per cent in January. Slower growth in coal production has mirrored that of electricity generation as the initial impetus of some government schemes has tapered. Imports of coal has also been higher, which have replaced domestic production, economists said.

On the other hand, refinery products, which command almost 30 per cent of the core sector index, continued to contract for the second straight month. It went down by 2.6 per cent in January, as opposed to 4.8 per cent in the previous month.

Elsewhere in the energy space, lower crude oil prices continued to impact crude oil production as well as exports of refinery product. Crude oil production went down by 4.3 per cent, the same as the previous month.

“We expect Brent oil to remain positive as OPEC production cut, Venezuela and Libya issues could keep oil on the boil, US trade talks with China would also be watched closely for further clarity on demand growth,” Abhishek Bansal, Chairman of commodity and financial services provider ABans said.

Natural gas production, however, fared better, rising by 6.2 per cent, up from 4.2 per cent in December, 2018.

“The two segments, which continue to do well, are cement and steel that can be linked with higher government capex. This is also reflected in the higher fiscal deficit numbers of the government. This has been the prime driving force of the infra industries through this year,” Madan Sabnavis, chief economist at CARE Ratings, said.

While steel output growth fell to 8.2 per cent in January, down from the 12.9 per cent growth in the preceding month, cement continued to hold on to double digit growth of 11 per cent in January.

However, increased production in steel allowed growth in the sector to be at a 13-month high.

Finally, fertiliser production bounced back in January, registering a 10.5 per cent rise, after three successive months of fall. Higher fertilizer growth has come over a negative base effect last year. This can be attributed more to restocking to an extent as the main demand season for sowing is completed, Sabnavis added.

Industrial output (measured by IIP) is expected to grow by about 2 per cent in January, 2019, with a downward bias due to high base effect, according to CARE Ratings.

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