Infra sectors' growth in negative zone after three-and-half years

The growth in production of eight key infrastructure sectors entered a negative zone after three-and-a-half years, contracting 1.8 per cent in August 2024 due to decline in output of coal, crude oil, natural gas, refinery products, cement and electricity, according to official data released on Monday.

The growth rate was 6.1 per cent in July.

The growth of core sectors -- coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity -- was 13.4 per cent in August 2023.

During April-August this fiscal, the output of core sectors rose 4.6 per cent against 8 per cent in the same period last fiscal.

The eight core sectors contribute 40.27 per cent to the Index of Industrial Production (IIP) which measures overall industrial growth.

The previous low was recorded at (-) 3.3 per cent in February 2021.

Coal, crude oil, natural gas, refinery products, cement and electricity recorded a contraction of 8.1 per cent, 3.4 per cent , 3.6 per cent, 1 per cent, 3 per cent and 5 per cent, respectively, in August.

However, fertiliser output rose by 3.2 per cent during the month under review as against 1.8 per cent in August 2023.

The growth rate of steel production slowed to 4.5 per cent in August 2024 against 16.4 per cent in the same month last year.

Commenting on the data, ratings agency Icra said the output of core industries posted a "sombre" contraction in August, "the first instance of a decline in as many as 42 months".

"Excess rainfall impacted mining activity, with the output of coal, crude oil, and natural gas declining, while also leading to a contraction in electricity generation in the month.

"The decline in these sectors was accentuated by an elevated base, with a deficient rainfall in August 2023 supporting the output of these sectors in that month," Aditi Nayar, chief Eeonomist, Icra Ltd said.

Excess rainfall and an adverse base are also likely to have weighed upon the output of the cement and the steel sectors, with the former reporting a YoY contraction and the latter witnessing the slowest growth in 26 months, she said.

"Given these trends, Icra expects IIP growth to slow down sharply to about 1 per cent in August from 4.8 per cent in July 2024.

"Core sector output may remain lacklustre in September given the late withdrawal of the monsoon, before normalising in the third quarter of this fiscal," she added.