Core sector output grew 2.4% year-on-year in July, helped by a low base in sectors including steel and electricity. The production performance of eight core industries — which comprise 40.27% of the weight of items included in the Index of Industrial Production (IIP) — in July 2017 was faster than June’s 0.8%, but slower than the 3.1% pace recorded in July 2016. Cumulative growth during April-July, 2017-18, was 2.5%.
“The modest uptick in core sector growth in July 2017 relative to the previous month was driven by a favourable base effect for steel, cement, fertilizers and electricity,” Aditi Nayar, Principal Economist, ICRA Ltd., wrote in e-mailed comments. “Nevertheless, half of the eight constituents recorded a YoY contraction in July 2017, namely, refinery products, crude oil, cement and fertilisers.”
‘Inventory rebuilding’
Ms. Nayar wrote that there was mixed evidence of post-GST inventory rebuilding, with a robust pick-up in growth of steel output in July 2017 (9.2%) relative to June 2017 (5.8%), in contrast to the continued, albeit narrowing contraction in production of cement (-2.0% in July 2017 vs. -6.3% in June 2017). Cement output shrank for the eighth consecutive month.
“Given the favourable base effect and the rebuilding of domestic inventories post-GST, we expect the IIP to revert to a YoY rise in July 2017, although the pace of growth may be subdued relative to the 5.2% recorded in July 2016,” she wrote.
Electricity generation registered a 5.4% growth in July 2017 from 2.2% in June 2017 and 2.1% in July 2016. Besides a favourable base effect, this also reflected a slight improvement in industrial demand following the introduction of the GST regime. Coal production grew by just 0.7% in July.