Infrastructure output contracts 1.8% in August

Output of eight key infrastructure sectors in India declined by 1.8% in August 2024, according to the latest data released by the Ministry of Commerce and Industry on Monday. In comparison, the combined Index of Eight Core Industries (ICI) growth rate stood at 6.1% in July, while the core sectors grew by 13.4% in August 2023. This decline was attributed to a drop in the output of coal, crude oil, natural gas, refinery products, cement, and electricity.

The production in eight key infrastructure sectors fell into negative territory for the first time in three-and-a-half years. The last recorded low was a 3.3% contraction in February 2021.

In August, the ICI, which accounts for approximately 40.27% of the Index of Industrial Production (IIP) that tracks overall industrial performance, reached 155.8. This figure reflects a third consecutive month of decline and is 4.3% lower than the levels seen in July.

The core sectors' output increased by 4.6% from April to August in the current fiscal year, down from the 8% growth observed in the same timeframe last fiscal year.

In August 2024, coal, crude oil, natural gas, refinery products, cement, and electricity experienced declines of 8.1%, 3.4%, 3.6%, 1%, 3%, and 5%, respectively. However, fertiliser output increased by 3.2%, up from 1.8% in August 2023. Steel production growth also slowed, rising by 4.5% in August 2024 compared to 16.4% in the same month the previous year.

“The output of core industries posted a sombre 1.8% YoY contraction in August 2024, the first instance of a decline in as many as 42 months. Excess rainfall impacted mining activity, with the output of coal, crude oil, and natural gas declining, while also leading to a contraction in electricity generation in the month. The decline in these sectors was accentuated by an elevated base, with a deficient rainfall in August 2023 supporting the output of these sectors in that month,” says Aditi Nayar, chief economist & head - Research and Outreach at ICRA.

“Excess rainfall and an adverse base are also likely to have weighed upon the output of the cement and the steel sectors, with the former reporting a YoY contraction and the latter witnessing the slowest growth in 26 months. The performance of these sectors during July-August 2024 suggests that construction activity weakened in the first two months of Q2 FY2025,” Nayar notes.

“Given these trends, ICRA expects IIP growth to slow down sharply to ~1% in August 2024 from 4.8% in July 2024. Core sector output may remain lacklustre in September 2024 given the late withdrawal of the monsoon, before normalising in Q3 FY2025,” Nayar adds.