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Core sectors’ output grows 6.8% in March due to low base

The 6.8% growth in output of six infrastructure sectors posted in March, a 32-month high, was driven by a base effect after contracting for nine out of the last 12 months. (Indranil Bhoumik/Mint)Premium
The 6.8% growth in output of six infrastructure sectors posted in March, a 32-month high, was driven by a base effect after contracting for nine out of the last 12 months. (Indranil Bhoumik/Mint)

  • While output of coal, crude oil, refinery products, and fertilizers continued to contract, the sectors natural gas, steel, cement and electricity expanded in double digits.

NEW DELHI : Output of six infrastructure sectors posted 6.8% growth in March—a 32 month high—as a fourable low base effect kicked in giving a false sense of normalcy even as the rampaging second wave of coronavirus pandemic and slow vaccine rollout are widely believed to delay any meaningful economic revival in Asia’s third largest economy.

Data released by the industry department on Friday showed while output of coal (-21.9%), crude oil (-3.1%), refinery products (-0.7%), fertilizers (-5%) continued contract, sectors like natural gas (12.3%), steel (23%), cement (32.5%) and electricity (21.6%) expanded in double digits. Overall, core sector contracted 7% in FY21 against 0.4% growth in the preceding year.

Overall, the output of eight infra sectors contracted 7% in FY21 against 0.4% growth in FY20
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Overall, the output of eight infra sectors contracted 7% in FY21 against 0.4% growth in FY20


Madan Sabnavis, chief economist at Care Ratings said March, April and May growth number for core sector and industrial growth was expected to be high and misleading as they come on the back of sharp declines registered last year. “In fact March was just the beginning of the lockdown which pushed back economic activity after which there were even sharper declines. Hence core sector growth of 6.8% in March must be interpreted with caution and this will be the theme in the next two months too," he added.

A spurt in coronavirus cases impacted consumer sentiment and forced the government to impose a nationwide lockdown in March last year. This led to economic growth collapsing to a 23.9% in June quarter with core sector contracting for six consecutive months from March to August of 2020. Indian economy plunged into its deepest recession in FY21 in more than 40 years contracting 8% as the first wave of the pandemic took a heavy toll on both services and manufacturing activity with massive job losses.

Aditi Nayar, chief economist at ICRA Ltd said the pace of expansion was weaker than her forecast of a 10% expansion, with a surprisingly sharp contraction in coal, and milder de-growth in fertilisers, crude oil and petroleum products. “The low base of the lockdown would push up the expansion of the index of eight core industries to a sharp 50-70% in April 2021, with exceptionally high growth expected in cement and steel. However, we have observed a slackening in the sequential momentum in April 2021 in electricity demand, vehicle registrations, and generation of GST e-way bills, revealing the impact of the recent surge in covid infections and localised restrictions. Based on the available data, we project the Index of Industrial Production to record a sharp growth of 17.5-25.0% in March," she added.

While the impact of the second wave which accelerated in April is expected to have lesser impact, expectation of double digit growth despite a favourable base effect is fast fading away. Brickwork Ratings on Tuesday revised its FY22 economic growth projection for India to 9% from 11% estimated earlier holding that the earlier presumptions of a V-shaped economic recovery is unlikely as the deadly second wave of COVID-19 has brought an abrupt halt to India’s nascent economic recovery from the pandemic. Rating agency Standard & Poor’s earlier this week said a drawn-out covid-19 outbreak with daily cases setting new records will impede India's economic recovery. “This may prompt us to revise our base-case assumption of 11% growth over fiscal 2021/2022, particularly if the government is forced to reimpose broad containment measures. The country already faces a permanent loss of output versus its pre-pandemic path, suggesting a long-term production deficit equivalent to about 10% of GDP," it added.

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