Key infra sectors' growth enters negative zone after three-and-half years at 1.8% in August

The growth in production of eight key infrastructure sectors entered a negative zone after three-and-a-half years, contracting 1.8% 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% in July.

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

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

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

The previous low was recorded at (-) 3.3% 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%, 1%, 3% and 5%, respectively, in August.

However, fertiliser output rose by 3.2% during the month under review as against 1.8% in August 2023. The growth rate of steel production slowed to 4.5% in August 2024 against 16.4% 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 Economist, 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% 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.