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Business News/ News / India/  Core sector contraction narrows in September
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Core sector contraction narrows in September

Data released by the industry department showed that in September, the core sector which constitutes 40% of the IIP shrank for the seventh consecutive month, with only coal (21.2%), steel (0.9%) and electricity (3.7%) registering positive growth

Indian economy has been showing signs of revival after contracting 23.9% in the June quarter following the nationwide lockdown to curb the spread of the coronavirus pandemic. Photo: MintPremium
Indian economy has been showing signs of revival after contracting 23.9% in the June quarter following the nationwide lockdown to curb the spread of the coronavirus pandemic. Photo: Mint

India’s eight infrastructure sectors drifted closer to expansion in September as contraction narrowed sharply to 0.8%, signalling an uneven return to normal manufacturing activity since the lifting of the nationwide lockdown on 1 June.

Data released by the industry department showed that in September, the core sector which constitutes 40% of the index of industrial production (IIP) shrank for the seventh consecutive month, with only coal (21.2%), steel (0.9%) and electricity (3.7%) registering positive growth while performance of fertilisers (-10.6%) and natural gas (-0.3%) worsened.

Aditi Nayar, principal economist at ICRA Ltd said with the shrinking of the contraction of the core sector output, and the growth displayed by both auto production and non-oil exports, the IIP may well be able to eke out a small growth in September. “The substantial improvement in the core sector performance was driven by the base effect-led uptick in coal production, related to heavy rainfall and labour issues in some mines in September 2019. Accordingly, the expansion in coal output is unlikely to sustain at this robust pace beyond the current month. With improved mobility of people and goods, the contraction in refinery products halved in September, an encouraging trend that may continue in the immediate term," she added.

Indian economy have been showing signs of revival after contracting 23.9% in the June quarter following the nationwide lockdown to curb the spread of the coronavirus pandemic. India’s manufacturing PMI expanded to its highest level in over eight-and-half years at 56.8 in September supported by quicker increases in new export orders and domestic sales, signaling faster turnaround in industrial activity. The Reserve Bank of India and the International Monetary Fund have estimated India’s economy to contract 9.5% and 10.3% respectively in FY21.

Finance minister Nirmala Sitharaman on Tuesday indicated that India’s GDP contraction may narrow down to near zero in FY21 if India’s ongoing economic revival remains sustainable in the second half of the financial year. Sitharaman has signaled that the government is working on a third stimulus to boost economic revival.

Data separately released by the Controller General of Accounts on Thursday showed that government exhausted 115% of its budgeted fiscal deficit of FY21 by September as revenue receipts fell 32.5% even as capital expenditure contracted 11.6% during the first half of the fiscal. The fall in capex signaling underutilization of allocated funds is baffling as Sitharaman earlier this month allocated 25000 additional spending on roads, defence infrastructure, water supply, urban development, defence infrastructure and domestically produced capital equipment to aid economic recovery.

“While the fiscal deficit will slip sharply this year to around 9% of GDP, a lot depends on revenue collections picking up in second half. The reports of consumption picking up do hold the clue. However this needs to be sustained," said Madan Sabnavis, chief economist at Care Ratings.

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Published: 29 Oct 2020, 05:21 PM IST
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