July core growth down to 5.4% as iron ore, power lose steam

New Delhi: India’s core sector output grew 5.4% year-on-year in July, slowing from 6% in June, as growth in iron ore, electricity and steel moderated while fertiliser and crude oil production contracted, according to official data released on Thursday.

July data is the second release under a revised index with 2022-23 as the new base year, replacing 2011-12. The updated series also includes iron ore, taking the number of core industries to nine. India Ratings and Research (Ind-Ra) expects growth in core industries to slow further to below 5%, mainly due to an unfavourable base effect. Despite the moderation, cumulative growth during April-July rose to 4.3%, compared with 1.5% in the same period last year.

Iron ore production recorded the highest growth at 29.5% in July, although it slowed from 44.5% in June. “The growth in iron ore output moderated sharply in July, owing to an unfavourable base, while remaining quite strong. This alone exerted a downward pressure to the tune of 95 basis points on the core output print in July relative to the previous month,” said Aditi Nayar, chief economist at ICRA. Fertiliser output declined for the fifth consecutive month, falling 8% year-on-year in July compared with a 3.3% decline in June, reflecting the impact of the West Asia conflict. “Supply-side issues – reduced gas supply and high energy cost – have been adversely impacting fertiliser production, following the West Asia conflict outbreak,” said Devendra Pant, chief economist, Ind-Ra.

Crude oil production contracted 5.3% in July from 4.2%, while natural gas output fell to 3.7% from 4.8% over the same period. Cement production expanded to a seven-month high of 13.1% year-on-year in July compared with 9.9% in the month before. “The replenishment of inventory after the extended period for construction activity in June owing to the sizeable monsoon deficit in the month is likely to have supported cement output in July,” said Nayar. Steel output grew 2.9% year-on-year in July, lower than 5.6% in June. Coal production grew to an 11-month high of 7.6% in July from 1.4% in June while electricity grew 9% compared with 11.4%. ICRA expects IIP growth to moderate to 6-6.5% in July while Ind-Ra projects less than 6% compared with 7.3% growth in June.