Eight core sectors growth slows to 2.1% in July; Manufacturing growth falls to 15-month low in August 2019

Growth of eight core industries dropped to 2.1 per cent in July mainly due to a contraction in coal, crude oil, natural gas and refinery products, according to official data. The eight crore sector industries – coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity – had expanded by 7.3 per cent in July last year.

During April-July 2019, the eight sectors grew by 3 per cent compared to 5.9 per cent in the same period the previous year. Last week, official data showed India’s GDP expanded at 5% in the first quarter, the slowest pace in over six years.

Consequently, India’s manufacturing sector activity declined to its 15-month low in August, owing to slower increases in sales, output and employment, a monthly survey said.

The IHS Markit India Manufacturing Purchasing Managers’ Index (PMI), fell to 51.4 in August, its lowest mark since May 2018, from 52.5 in July, as most survey indicators fell since July to signal a widespread loss of momentum.

“August saw an undesirable combination of slowing economic growth and greater cost inflationary pressures in the Indian manufacturing industry,” Pollyanna de Lima, Principal Economist at IHS Markit said, adding that “most PMI indices moved lower, including key health-check measures for new orders, output and employment”.

The survey noted that competitive pressures and challenging market conditions restricted the upturn. New orders from overseas also increased at a slower rate in August, with growth the weakest seen since April 2018.

In August, sales expanded at the slowest rate in 15 months, following which production growth and job creation were tamed. Moreover, factories lowered input buying for the first time since May 2018.  “Until manufacturers are willing to loosen the purse strings, it is difficult to foresee a meaningful rebound in production growth on the horizon,” Lima said.
Subdued sales to domestic and international clients in turn curbed output growth, which softened to the weakest in a year. Some survey members also reported cash flow problems and a lack of available finance.

Last week, the Indian government announced its second of the three-part stimulus, merging 10 public sector banks into four with a view to boost credit to help revive the economy.

A week prior to this announcement, the first stimulus package was unveiled that included reduction of taxes, improvement of liquidity in the banking sector (formal and shadow), increased government spending on auto and infrastructure, and accelerated refunds of Goods and Services Tax (GST).

This was followed by liberalisation of foreign investment rules in four sectors — coal mining, contract manufacturing, single-brand retail and digital media. A third and possibly last package, expected in the next few days, may deal with issues facing the realty sector.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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