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October 5, 2017

Driven by 15.3% rise in coal production, the country’s core sector growth climbs to 5-month high at 4.9% in Aug ’17.

Core sector growth rebounded to a five-month high in August while manufacturing activity expanded for the second month running in September, providing some cheer for an economy that saw growth touch a three-year low in the June quarter. The data would have been factored in by the monetary policy committee ahead of the Reserve Bank of India announcing the policy on Wednesday.

he core sector, comprising eight infrastructure segments, saw a 4.9% rise in output in August compared with 2.6% in July, data released by government showed. To be sure, the growth was driven largely by a sharp rise in coal and electricity output and wasn’t evenly spread. Crude oil, cement and fertiliser declined. The core sector grew 3.1% in August last year.

Increases in both output and new orders helped the manufacturing sector remain in the expansion zone with the Purchasing Managers’ Index (PMI) coming in at 51.2 in September, the same as August. A reading above 50 on the index indicates expansion.

The data will cheer the government following the criticism it faced over economic management after growth declined to 5.7% in the April-June period, triggering a downgrade in growth forecasts for FY18 to below 7% and calls for a fiscal stimulus.

“September data painted an encouraging picture as the sector continued to recover from the disruptions caused by the introduction of the goods and services tax (GST) in July,” said Aashna Dodhia, economist at IHS Markit and author of the PMI report.

The two sets of data point toward positive news on industrial production for August, said independent economists. Factory output, as measured by the Index of Industrial Production (IIP), rose just 1.2% in July. The core sector has a near 40% weight in IIP.

“Given the weight of around 40% in IIP, this number should translate into a higher number growth for the month with the destocking process getting reversed and could be in the range of 2-3%,” said Madan Sabnavis, chief economist at CARE Ratings. The improvement in core sector output as well as automobiles along with the PMI reading portend an uptick in industrial growth, said ICRA principal economist Aditi Nayar.

“Given the favourable base effect and the expected rebuilding of inventories prior to the festive season, we expect the IIP growth to improve in August relative to the initial estimate of 1.2% for July,” she said.

However, IHS Markit downgraded its real GDP growth for India to 6.8% in FY18 from 7.3% previously as the lingering effects of recent economic shocks continue to cast a shadow on growth, according to Dodhia. The government sees the slowdown as temporary, caused due to the combined effect of demonetisation and disruption owed to the launch of the goods and services tax (GST) on July 1.

Infra Grows The spurt in coal and power obscured drops in other segments. Despite August being a monsoon month, coal production was at a 33-month high of 15.3%, aided by a favourable base effect and less rain in the coal-producing states of central India.

Electricity output rose to a 16-month high of 10.3% in August. However, crude oil, fertiliser and cement production declined 1.6%, 0.7% and 1.3%, respectively, in August. Steel posted 3% growth.

Source: http://economictimes.indiatimes.com/news/economy/indicators/-output-of-eight-core-industries-rises-in-august/articleshow/60926080.cms

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