India’s infrastructure output in August fell from a year earlier for the first time since April 2015, signalling the economic growth recovery in Asia’s third largest economy may be slow despite a cut in the corporate tax rate and other policy measures designed to spur investment.
India’s August infrastructure output fell 0.5% in August from a year earlier, government data showed on Monday.
Infrastructure output, which comprises eight sectors such as coal, crude oil and electricity, accounts for nearly 40% of India’s industrial output.
The contraction was mainly due to the decline in the five economic segments: coal, crude oil, natural gas, cement and electricity.
“The data supports our view that the slowdown is both structural and cyclical and it has started showing up in some of the important indicators like the core sector,” said N. Bhanumurthy, an economist at the government funded National Institute of Public Finance and Policy.
India’s economic growth in April-June fell to a six-year low of 5%.
Finance Minister Nirmala Sitharaman announced a slew of measures in the last month including cutting the corporate tax rate to bring it in line with other Asian peers. The government also merged 10 state-run banks into four and made an upfront capital infusion of 700 billion rupees into the state-run banks.
“I think some of the measures the government has initiated together with some of the measures Reserve Bank of India has already taken should help in reviving core sectors in the coming months,” Bhanumurthy said.
RBI has cut policy rates by 110 basis points since February to spur investment and demand in the economy through cheaper loans.
Economists also think the country’s central bank may further cut rates in the next meeting on Oct. 4.
During April-August, infrastructure output grew 2.4% from the year-ago period, according to the data.
