• HDFC
• 24 Aug 2018
• Knowledge Centre

HDFC, Tester

According to Government data, growth in the eight core industries touched a seven-month high of 6.7% in June 2018. This came as a much-needed breather, as growth in these had dipped to a 10-month low of 3.6% in May 2018.

 

Recap

 

Growth in these eight industries came in at 5.2% during Q1 FY19. As per the data released by the Commerce and Industry Ministry, steel production grew by 4.4%, while that of natural gas dipped by 2.7% in June 2018, as against the year-ago period. Coal production rose by 11.5% vis-à-vis the previous year’s figure. Petroleum refinery production increased by 12%, production in fertilizers by 1%, cement 13.2% and electricity generation by 4% in the period under review.

 

However, crude oil production declined by 3.4% as against the year-ago period. All in all, cement, refinery products, and coal were the key drivers of growth.
May 2018 witnessed a decline in the growth of eight infrastructure industries to a 10-month low of 3.6%, given that the growth rate in April 2018 was 4.6%. This was largely owing to a reduction in the production of crude oil and natural gas. It marked the lowest growth rate since July 2017.

 

Important Parameter

 

The importance of growth in the core sector cannot be undermined, as it holds a weightage of 40% in the country’s Index of Industrial Production or IIP figure. A measure of industrial growth, IIP grew at 3.2% in May 2018, as compared to 4.8% in April 2018 and 2.9% in May 2017. Ten of the 23 industry groups in this macroeconomic indicator displayed negative growth, indicating the wide bandwidth of the slowdown.

 

The manufacturing sector, with a 77% share, recorded a growth of 2.8% in May 2018, as against 5.3% in April 2018 and 2.6% in the year-ago period. The consumer non-durables sector was the worst performer, with a growth rate of 2.6% as against a growth of 9.7% a year ago, and 7.9% in April 2018. The mining sector expanded by 5.7%, up from 4% in April 2018 and 0.3% in May 2017.

 

Released ahead of the RBI’s bi-monthly monetary policy review, growth in the eight core industries reflected a positive picture with regard to the health of the economy. This data was one factor that supported the central bank’s decision to hike policy rates.

 

However, a leading financial daily quoted Mr. Madan Sabnavis, Chief Economist at CARE Ratings as saying that he attributed the growth to a low base effect, as the Goods and Services Tax was rolled out on 1st July 2017. This resulted in a slowing down of all industrial activity.

 

Core sector growth in May 2018 was revised up to 4.3% from 3.6% and is also expected to lift the overall IIP growth for that month from 3.2% estimated initially.