India’s core sector output growth slows to 5-month low of 3.6% in March

New Delhi: Output of eight infrastructure industries grew 3.6% in March 2023 at nearly half the pace it had expanded in the month before and at its slowest pace since October as crude oil, cement and electricity sectors saw a contraction, official data showed, indicating the impact of unseasonal rains.

Core sector output had expanded at 4.3% in March 2022.

Output of core sectors had increased by 7.2% in February 2023. The previous low was 0.7% in October 2022, according to official data released by the Ministry of Commerce and Industry on Friday. The output of crude oil contracted by 2.8%, power by 1.8% and cement by 0.8% in March this year.

On the other hand, output of coal recorded an increase of 12.2%, fertilisers by 9.7%, steel by 8.8%, natural gas by 2.8% and refinery products by 1.5%, the data showed.

In the full year FY23, the eight infrastructure sectors grew at 7.6%, down from 10.4% recorded in FY22.

“The halving in the year-on-year core sector growth to a five month low of 3.6% in March 2023 from 7.2% in February 2023, was fairly broad-based, with only coal and crude oil displaying a sequential improvement” said ICRA Ltd. Chief Economist Aditi Nayar. Crude oil output reduced the extent of contraction in March from the level seen in February.

“Output of some of the sectors is likely to have been dampened by the unseasonal rainfall, such as electricity and cement, which displayed a year on year contraction in March 2023 along with crude oil. At the same time, coal, fertilisers and steel displayed a healthy expansion in excess of 8% in March 2023, which is encouraging,” she added.

Dampened by a high base and heavy rainfall, the year on year performance of most of the available high frequency indicators weakened in March 2023, relative to February 2023, similar to the trend in the core sector, she said.

Sunil Sinha, Principal Economist, India Ratings and Research attributed the moderation in the core sector output in FY23 to normalisation of the statistical base. “With the weakening global and domestic demand, Ind-Ra believes that the growth in infrastructure industries would be under pressure in the ongoing fiscal year. As a result, the agency expects the core sector annual growth in FY24 at around 5%,” said Sinha.

The index of eight core industries measures combined and individual performance of production of eight core industries and it makes up 40.27% of the weight of items included in the Index of Industrial Production (IIP).

Earlier this week, the finance ministry flagged the downside risks to the official forecast of 6.5% economic growth rate in FY24 arising from oil production cut by the OPEC, troubles in the financial sector in developed markets impeding cash flows and elevated risks to the monsoon rains from El Nino which could impact farm output and prices.