Activity in India’s eight core sectors, as measured the core index, increased 1.9 percent year-over-year in the month of September, government data showed. Compared to this, the index had grown by 5.8 percent in the previous month.
The eight sectors, which contribute about 38 percent to the closely-watched index of industrial production (IIP) data, are coal (weightage: 4.38 percent), crude (5.22 percent), natural gas (1.71 percent), petroleum (5.94 percent), fertilizers (1.25 percent), steel (6.68 percent), cement (2.41 percent) and electricity (10.32 percent).
Sectors that led the overall output growth were coal (up 7.2 percent) and the heavyweight electricity (up 3.8 percent), apart from steel and cement (up 4 percent and 3.2 percent, respectively).
While activity in crude oil (-1.1 percent), natural gas (-6.2 percent), petroleum (-2.5 percent) and fertilizers (-11.6 percent). Output in all four sectors had contracted in the previous month as well.
ICRA economist Aditi Nayar attributed the slowdown in the pace of growth, month-on-month, to a high base as well as the fact that growth in electricity generation (the biggest contributor to the index) had come off (it grew over 10 percent in August).
The fall in the pace of growth would also reflect in the index of industrial production data — where the eight sectors contribute a vital chunk to index – when it is released for September, even though increased activity in non-core sectors such as automobiles may pick up the slack, according to RBS chief economist Gaurav Kapur.
“This would dampen the overall number but hopefully, stocking activity [for automobiles] will have a positive impact,” he said, adding that he would expect a pick-up in IIP for the month of October, thanks to increased festive activity.
Given the data that has come out so far, Nayar said second-quarter GDP data may come in lower at 5 percent, compared to 5.7 percent in the first quarter.
This could put additional pressure on the Reserve Bank of India to tone down its hawkishness on interest rates, as several factors such as falling inflation and weak crude prices coupled with weak macroeconomic data may tilt the central bank’s focus from combating prices to boosting growth.
“The RBI was expecting weak growth in Q2 and Q3 but Q2 may turn out softer than even its expectations. With its January 2015 objective being in sight [of 8 percent consumer inflation — the last reading stood at 6.5 percent], there could definitely be some toning down of their hawkishness on rates,” he said.