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NEW DELHI : India’s eight infrastructure sectors shrank for the fourth straight month in November at 1.5%, though the magnitude of contraction slowed from 5.8% in the previous month.

The slowing of the pace of contraction is being interpreted by some economists as a sign of green shoots, indicating that the economy is on a recovery path.

Graphic: Sarvesh Kumar Sharma/Mint
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Graphic: Sarvesh Kumar Sharma/Mint

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India’s economic growth decelerated to a six-and-a-half-year low of 4.5% in the September quarter on the back of slowing domestic and external demand. Data released by the Controller General of Accounts on Friday showed that the government exceeded its 2019-20 fiscal deficit target by 114.8% during the April-November period.

Five of the eight infra sectors reported a drop in output in November, according to data released by the industry department on Friday. Cement production bounced back to 4.1% growth, recovering from monsoon-related disruptions, while the output of refinery products accelerated to 3.1% in November. The output of coal and electricity sectors shrunk at a slower pace of 2.5% and 5.7%, respectively, in November from the previous month. However, crude oil, natural gas and steel saw their output shrink at a faster pace in November than in October.

Madan Sabnavis, chief economist at CARE Ratings, said the core sector growth numbers for November, though disappointing, have a silver lining as sectors such as cement and fertilizers have registered growth. “There is a mixed picture when it comes to non-energy based industries, which have performed better (than energy-based industries)."

With an improvement in the performance of a number of lead indicators, including core sector industries, auto production and non-oil merchandise exports, Aditi Nayar, principal economist at ICRA Ltd, expects factory output to report modest growth in November after having contracted since September. The eight core sectors contribute 40% to the Index of Industrial Production.

Retail sales of passenger vehicles in India grew just 1% year-on-year to 257,271 units in November, after the worst festival season sales in nearly five years, showed data released by the Society of Indian Automobile Manufacturers in December.

Commerce ministry data released last month showed that non-oil merchandise exports grew 2.5% in November, led by electronic goods, engineering goods and pharmaceuticals, even as overall exports contracted 0.3% during the month.

The Business Inflation Expectations Survey of 1,200 companies by IIM Ahmedabad released on Friday showed early signs of improvement in sales perception. In November, around 68% of the companies in the sample reported that sales were “somewhat or much less than normal" compared to 76% that reported so in October.

After reducing policy rates five consecutive times by a cumulative 135 basis points, the Reserve Bank of India (RBI) opted for a pause in its December monetary policy review, given the sharp increase in retail inflation and weak monetary transmission from its earlier rate cuts. Retail inflation quickened to 4.6% in October, propelled by a surge in food prices.

Earlier last month, RBI pared its growth forecast to 5% for 2019-20 from its October estimate of 6.1%, citing weak business and consumer sentiment. “While improved monetary transmission and a quick resolution of global trade tensions are possible upsides to growth projections, a delay in revival of domestic demand, a further slowdown in global economic activity and geopolitical tensions are downside risks," said RBI.

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