The output of eight infrastructure industries rose 5.2% in June, compared with 2.8% in the previous month, as coal production touched a 19-month high and cement, fertiliser and electricity sectors performed well. However, contraction in crude oil and natural gas continued, showed official data released on Monday.
Coal production rose 12% in June, compared with 5.5% in the previous month, as mining activities were boosted by lower rainfall during June from a year earlier. Cement output grew 10.3% in June, against 2.4% in May. Fertiliser production growth slowed to 9.8% in June from 14.8% in May, but the expansion still remained strong as companies sought to cater demand during kharif crop sowing. Electricity sector rose 8.1% in June, compared with 4.6% a month earlier.
“Healthy rains in July have replenished reservoir levels, which would support an improved growth of hydroelectricity generation in the coming months,” said Aditi Nayar, senior economist at ICRA.
However, crude oil output dropped 4.3% in June, contracting each month since September last year. Natural gas output shrank 4.5%, dropping consistently since October last year. A crash in global prices of crude oil and natural gas have badly hurt domestic production of these commodities.
“(Nevertheless) The combination of higher growth of the core sector industries, auto production as well as non-oil merchandise exports augur well for a somewhat firmer industrial expansion in June, compared with the 1.2% rise in May,” said Nayar. The core infrastructure industries have a combine weightage of roughly 38% in the IIP.
Though the sustainability of the double-digit expansion in cement production in June remains uncertain, ICRA expects cement demand to grow by 6% during 2016-17, driven by a pick-up in infrastructure, as well as a rebound in rural demand after a favourable monsoon.
The fourth straight month of rise in steel production (It grew 2.4% in June, compared with 3.2% in May) was aided by favourable bases. However, it also suggests the government’s move to protect domestic primary steel producers against cheaper imports may have had an impact, although the sector is still among the worst performers.