India's Infrastructure Output Declines for First Time in Three Years Amid Heavy Rains - Read Here

The core sector, which encompasses crucial industries like coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, and electricity, accounts for nearly 40% of the Index of Industrial Production (IIP). The recent downturn is largely attributed to the impact of heavy rainfall on mining and electricity generation activities.

By Aayushi Dubey Oct 1, 2024, 13:20 IST

The output of India's key infrastructure sector has contracted for the first time in more than three years, reflecting a decline across six of the eight segments due to excessive monsoon rains, according to data released by the Ministry of Commerce and Industry on Monday. In August, the sector's output fell by 1.8% compared to a robust growth of 6.1% in July. Notably, this is a sharp decline from a growth rate of 13.4% in August of the previous year.

Impact of Adverse Weather Conditions

The core sector, which encompasses crucial industries like coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, and electricity, accounts for nearly 40% of the Index of Industrial Production (IIP). The recent downturn is largely attributed to the impact of heavy rainfall on mining and electricity generation activities. Key segments such as coal, crude oil, and natural gas experienced declines, contributing to the overall poor performance.

While steel and fertilizers managed to post gains of 4.5% and 3.2%, respectively, these sectors could not offset the downturn seen in others. Aditi Nayar, Chief Economist at ICRA, noted that the increase in rainfall during August affected production across several industries, further complicating the situation given the high output levels recorded in August 2023, which benefited from a lack of rainfall.

Economic Implications

This contraction in infrastructure output is expected to influence the overall industrial output numbers, which are set to be released later this month. The decline suggests a weakening of construction activities during the first two months of the second quarter of FY2025.

Additionally, separate reports indicated that the country's fiscal deficit reached ₹4.35 lakh crore, representing 27% of the total annual target by the end of April-August.

The recent data paints a concerning picture for India's infrastructure sector, signaling potential challenges ahead for the economy. Stakeholders will be closely watching how these trends affect broader industrial performance and fiscal targets in the coming months.