The indicator of India’s economy, the core sector output, of India contracted 5.2% in September. This is believed to be its worst performance in 14 years and also forebodes that the economy may have fallen further in the second quarter of the current financial year.
The Index of Eight Core Industries, which measures output in coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity, grew 4.3% in September 2018 that is the corresponding period to last year.
The estimate for August was revised to +0.1% from -0.5% earlier. This index is important due to the fact that this comprises almost half of the weightage in the IIP, which may now indicate a further slide.
Based on the data released by the Centre on Thursday (October 31), analysts at Dalal street expect the Index of Industrial Production (IIP) to report a contraction of 2.5-3.5% in September. Coal particularly appears to be troublesome as the coal constitutes 10% of the core sector index.
The production fell by 20.5% in September and had earlier reduced by 8.6% and 1.6% in the preceding two months. Contraction in the coal sector began in July 2019 and the reason for this fall could be attributed to the falling output at Coal India Ltd, the cause for which was believed to be a stoppage in production due to heavy and unprecedented monsoon and labour unrests in several mines.
The problem with a shrinkage in coal mining implies a direct shrinkage in electricity generation as well, as data shows that it has also faltered with contraction accelerating to 3.7%, up from 0.9% in August.
All sectors in the core index, except fertilisers, posted a contraction. Coal, cement, steel and refinery products could have been affected due to the lack of consumption uptake in the economy.
The data was released by the MoSPI on Thursday (October 31), last month the GDP growth rate of India fell to a six-year low of 5% during the first quarter of the ongoing fiscal. This contraction in key industries further emphasises the prevailing economic condition.
Earlier this month, the RBI revised downwards its GDP growth forecast for the current fiscal to 6.1% from the previous estimate of 6.9% after the first-quarter economic growth slipped.