Home >News >India >Core sector growth flat in June, Q1 fiscal deficit at 61.4% of full-year target

Core sector growth flat in June, Q1 fiscal deficit at 61.4% of full-year target

  • During June, the output of refinery products, which holds the highest weight of 28% within the core sector, contracted by 9.3%
  • Production of natural gas fell by -2.1%, while the cement sector contracted by -1.5%

New Delhi: The economy received more bad news on Wednesday with eight infrastructure sectors, which constitute 40.27% of the index of industrial production (IIP) almost remaining flat (0.2%) in June, paving the way for another round of policy rate cut by the Monetary Policy Committee of the Reserve Bank of India during its meeting on 7 August.

The economy threw up more bad news on Wednesday with the eight infrastructure sectors that constitute 40.27% of the index of industrial production (IIP) almost remaining flat (0.2%) in June. This may pave the way for another round of rate cuts when the monetary policy committee of the Reserve Bank of India meets on 7 August.

During June, output of refinery products with the highest weight of 28% within the core sector contracted by 9.3%. This is apart from declines in production of natural gas (-2.1%) and cement (-1.5%). The only sector that continues to grow at a robust pace is electricity generation (7.3%).

While releasing data of India’s merchandise exports earlier this month, which showed a contraction of 9.71% in June, commerce secretary Anup Wadhawan had attributed it to a temporary shutdown of ONGC’s Mangalore Petrochemical Ltd and its Jamnagar refinery for maintenance in June, adversely affecting exports of petroleum products. This could have been reflected in the core sector data as well.

“The effects of the shutdown of the Jamnagar refinery are likely to abate by mid-July. The fall in Brent prices by 15.6% in June is also a factor in the declining value of petroleum product exports," Wadhawan had said on 15 July.

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Data separately released by the Controller General of Accounts showed during the first quarter (April-June), the central government had exhausted 61.4% of its full-year fiscal deficit target. This compares with 68.7% during the same period a year ago.

In the absence of a fiscal stimulus, most analysts believe monetary policy needs to do the heavy lifting in order to pump up economic growth. The RBI cut policy rates for the third consecutive time in June by a cumulative 75 basis points and is expected to cut rates yet again next month, given the benign inflation trajectory.

Retail inflation grew 3.18% in June compared to 3.05% a month ago, while factory output, measured by the index of industrial production (IIP), decelerated from an upwardly revised 4.3% in April to 3.1% in May.

The International Monetary Fund has reduced its growth projection for India in 2018-19 by 30 basis points to 7% expecting weaker domestic demand.

Gross domestic product growth in India in the March quarter slowed more than expected to 5.8% from 6.6% in the December quarter. This was the slowest quarterly GDP growth in five years. Annual GDP growth slowed to 6.8% in the year ended 31 March from 7.2% in the previous year.

Since last month, the Reserve Bank of India, the Economic Survey of the finance ministry, and the Asian Development Bank have cut their growth outlook for India to 7%.

The IMF said the recent softening of inflation across emerging markets and developing economies provides central banks the option of becoming accommodative, “especially where output is below potential and inflation expectations are anchored".

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