India's Core Sector Growth Hits 20-Month Low at 4% in June

The output of India’s eight core infrastructure industries grew by 4% year-on-year in June, marking the slowest expansion in 20 months, according to data released by the Department for Promotion of Industry and Internal Trade (DPIIT) on Wednesday.

This moderation in growth, down from 6.4% in May 2024 and 8.4% in June 2023, can be attributed to a high base effect and reduced electricity demand due to the onset of the monsoon season.

The eight sectors—coal, steel, cement, fertilizers, electricity, natural gas, refinery products, and crude oil—constitute nearly 40% of India’s total industrial production, making their performance a key indicator of the country’s economic health.

Aditi Nayar, Chief Economist at ICRA, noted that the core sector's expansion dropped to a 20-month low, driven by slower growth or deeper contractions in five of the eight sectors compared to May. “With the onset of the monsoon, electricity growth reverted back to single digits after two months, though it remained healthy at 7.7%. Given the dip in core sector growth, we expect the Index of Industrial Production (IIP) to increase by 3.5-5% in June 2024,” Nayar said.

Despite the overall slowdown, coal production surged by 14.8% in June, driven by higher demand for power. Electricity generation also grew by 7.7%, which, while lower than the 13.7% growth seen in May, was still an improvement over the 4.2% growth recorded in June 2023.

Other sectors, including fertilizers, natural gas, steel, and cement, posted modest growth rates of 2.4%, 3.3%, 2.7%, and 1.9% respectively. However, crude oil and refinery products continued to face challenges, with these sectors being the only ones to record contractions in output during the month.

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