**

India's core sector growth slumped to a meager 0.7 percent in May 2024, signaling a potential slowdown in the country's economic momentum. This sluggish performance, significantly below market expectations and April's 4.1 percent growth, has ignited concerns amongst economists and analysts about the overall health of the Indian economy. The data, released by the Ministry of Commerce and Industry, paints a worrying picture, particularly considering the crucial role the core sector plays in India's GDP.

Understanding India's Core Sector Performance: May 2024 Data

The core sector, comprising eight major infrastructure industries, contributes significantly to India's overall industrial output. These industries include:

• Crude oil: Experienced a decline in production, contributing to the overall sluggish growth.
• Natural gas: Also saw a contraction, impacting the energy sector's contribution to the core sector index.
• Refinery products: Showed mixed performance, with some products exhibiting growth while others lagged.
• Fertilizers: Production levels remained relatively stagnant, failing to provide a significant boost.
• Steel: Experienced moderate growth, but insufficient to offset the weaknesses in other sectors.
• Cement: Growth was subdued, reflecting a slowdown in the construction and infrastructure sectors.
• Electricity: Power generation showed marginal growth, underscoring the challenges facing the energy sector.
• Coal: Production witnessed modest expansion, but not enough to significantly impact the overall core sector performance.

This underwhelming performance across multiple sectors highlights the complex challenges facing the Indian economy. The slowdown raises questions about the effectiveness of recent government initiatives aimed at stimulating growth.

Factors Contributing to the Slowdown

Several factors contributed to the disappointing core sector growth in May 2024. These include:

• Global Economic Slowdown: The continuing impact of global economic uncertainty, including high inflation and geopolitical tensions, has dampened demand for Indian goods and services. This is particularly evident in the export-oriented sectors within the core industries.

• High Interest Rates: The Reserve Bank of India's (RBI) monetary policy, aimed at controlling inflation, has led to higher interest rates, increasing borrowing costs for businesses and potentially hindering investment and expansion. This impacts capital expenditure across various sectors.

• Weak Consumer Demand: Despite positive indicators in some segments, overall consumer demand remains relatively muted, leading to lower production levels in several core industries like cement and steel.

• Supply Chain Disruptions: Lingering supply chain bottlenecks, though less severe than in previous years, continue to pose challenges for several sectors, particularly those reliant on imported raw materials.

• Monsoon Uncertainty: The onset and strength of the monsoon season significantly influence agricultural output and related industries. Any uncertainty or delay can negatively affect the overall economic outlook. This can have a ripple effect on the core sector, impacting demand for fertilizers and other related products.

Implications for the Indian Economy

The weak core sector performance in May 2024 raises significant concerns about India's overall economic growth trajectory. A sustained slowdown in this crucial sector could have broader implications:

• GDP Growth Projections: The disappointing core sector data may necessitate a downward revision of India's GDP growth forecasts for the current fiscal year. Analysts are closely monitoring the situation and adjusting their predictions accordingly.

• Job Creation: Slowdown in the core sector can lead to reduced job creation opportunities, potentially impacting employment levels across the country. This is a key concern, given India's large and growing population.

• Investment Sentiment: The weak performance could dampen investor sentiment, potentially discouraging both domestic and foreign investment. Confidence in the Indian economy is crucial for sustainable long-term growth.

• Inflationary Pressures: While high interest rates aim to combat inflation, a prolonged slowdown in the core sector could lead to a complicated scenario where inflation remains stubbornly high despite suppressed demand.

Government Response and Future Outlook

The Indian government is likely to closely monitor the situation and consider appropriate policy responses. Measures could include:

• Fiscal Stimulus: Targeted fiscal measures aimed at boosting demand and investment in specific sectors could help revive growth.

• Monetary Policy Adjustments: The RBI might reassess its monetary policy stance, potentially adjusting interest rates based on the evolving economic conditions. This is a delicate balancing act, needing to consider both growth and inflation control.

• Infrastructure Spending: Increased public spending on infrastructure projects could stimulate growth in the construction and related industries.

The outlook for India's core sector remains uncertain. The performance in the coming months will be crucial in determining whether the May slowdown is a temporary blip or the beginning of a more prolonged period of weak growth. Close monitoring of factors like global economic conditions, domestic demand, and government policy responses will be essential in understanding the future trajectory of India's economic performance. The coming months will be critical in determining the overall health and direction of the Indian economy. Continuous updates and analyses of economic indicators will be key to gauging the effectiveness of any policy interventions.