5 out of 8 sectors in negative zone

Growth in the eight core sectors in August slumped to the lowest in four years and four months. That is, the -0.5% registered in August 2019 was the lowest since April 2015.

Growth in five out of the eight sectors of the Index of Eight Core Industries fell into the negative zone in August. The index had registered a growth of 2.7% in July 2019 and a robust 4.72% in August 2018.

“The contraction is surprising because last month it was about 2.7% or so,” D.K. Srivastava, chief policy adviser at EY India, said.

“It is an indication of a continuing slowdown and weak demand in the system. The core sectors reflect demand from the power and infrastructure sectors, where the government’s own demand is important and public sector spending has been low in the last 3-4 months, so that could explain the contraction.”

Slips sharpest Within the Index, the coal sector saw the sharpest contraction, with the sector contracting 8.6% in August 2019 compared with a contraction of 1.6% in the previous month. This is the sector’s worst performance in three years.

The crude oil sector contracted 5.4% in August, compared with a contraction of 4.4% in July. August marked the 21st consecutive month of contraction for the sector. Notably, the cement sector fell into negative territory in August, contracting 4.9%, compared with a growth of 7.9% in the previous month.

The natural gas sector contracted 3.9% in August, compared with a contraction of 0.5% in July. The sector has now contracted in four out of the last five months, with it having zero growth in the fifth. The electricity sector also saw a contraction in August, contracting 2.9%, compared with a growth of 4.7% in the previous month.

Mr. Srivastava said the contraction also suggests that the slowdown is continuing in the broader economy as well, adding that it is highly likely the RBI would cut interest rates again at its October 4 meeting.

“It does indicate on a broader basis also the economic slowdown is continuing and signs of a revival are not visible,” he said.