August 2019: Core Sector Output Shrinks 0.5%

India’s core sector output contracted 0.5% in August after growing 2.7% in July, marking the lowest point in growth since April 2015 and reinforcing the slowdown that the economy is facing.

The contraction, as per commerce and industry ministry data released, suggests lack of any recovery in the second quarter after GDP growth plunged to a six-year low of 5% in April-June. It could lead the Reserve Bank of India to cut rates further when it reviews its monetary policy later this week.

The Index of Eight Core Industries, popularly called the core sector index, measures output of eight infrastructure industries. The core sector had expanded 4.7% in August last year. The government on Monday revised upwards the core sector growth for July to 2.7% from 2.1%. The government on Monday revised upwards the core sector growth for July to 2.7% from 2.1%, based on an upward revision of steel output to 8.9% from 6.6%. April-August core sector growth was 2.4%, as against 5.7% a year ago.

Output of coal, crude oil, natural gas, cement and electricity contracted 8.6%, 5.4%, 3.9%, 4.9% and 2.9% respectively in August. Only refinery products (2.6%), fertilisers (2.9%) and steel (5%) posted positive growth in August.

The eight infrastructure industries of coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity have a 40.27% weight in the index of industrial production. Low core sector growth suggests moderation in industrial growth from better-thanexpected 4.3% in July. Economists expect IIP growth to be anaemic in August and even fall below 1%.

RBI is expected to cut its key policy rate by 25 basis points (one basis point is one-hundredth of 1%), following the 110 basis points cut already announced in 2019 so far.

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