Base effect, lower crude oil production decelerate July core factory output

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New Delhi : Unfavourable base effect, along with a contraction in crude oil and natural gas production sequentially decelerated India's eight major industries' output in July 2018.

According to the Ministry of Commerce & Industry on Friday, the Index of Eight Core Industries (ECI) showed a rise of 6.6 per cent from a growth of 7.6 per cent in June.

However, on a year-on-year basis, July's growth was higher than the rise of 2.9 per cent reported for the corresponding period of the previous fiscal.

"The combined Index of Eight Core Industries stands at 128.4 in July, 2018, which was 6.6 per cent higher as compared to the index of July 2017," the ministry said in a statement.

"Its cumulative growth during April to July, 2018-19 was 5.8 per cent."

The ECI index represents major sectors like coal, steel, cement and electricity. It carries 40.27 per cent weightage of the Index of Industrial Production (IIP), which is the macro gauge for India's factory output.

On a sector-specific basis, refinery products, which has the highest weightage of 28.03 per cent, grew by 12.3 per cent in July 2018 compared with the corresponding month of the last fiscal.

Electricity generation, which has the second highest weightage of 19.85, picked up by 4.8 per cent.

Steel production, the third most important component with weightage of 17.92, inched up by 6 per cent during the month under review, whereas coal mining, with a 10.33 weightage, edged higher by 9.7 per cent.

On the other hand, extraction of crude oil, which has an 8.98 weightage, declined by
(-) 5.4 per cent during the month under consideration.

The sub-index for natural gas output, with a weightage of 6.88, slipped by (-) 5.2 per cent.

Cement production, which has a weightage of 5.37, edged higher by 10.8 per cent in July 2018.

Fertiliser manufacturing, which has the least weightage -- only 2.63 -- inched-up by 1.3 per cent during the month under review.

"The dip in the core sector growth in July 2018 relative to the previous month was modest albeit broad-based," said Aditi Nayar, Principal economist at ICRA.

"The easing in growth of core sector output and automobile production, as well as an unfavourable base effect, suggest that a moderation in IIP growth in July 2018 relative to June 2018 is on the anvil."