Core sector posts sharpest contraction in six months

Sectoral output shrank 4.6% in February, underlining the uncertain path to recovery

Asit Ranjan Mishra
Updated31 Mar 2021, 11:29 PM IST
Refinery products (-10.9%) recorded the sharpest decline in output followed by cement (-5.5%)
Refinery products (-10.9%) recorded the sharpest decline in output followed by cement (-5.5%)(Bloomberg)

India’s eight infrastructure sectors contracted at the sharpest pace in six months in February, reversing two months of positive growth.

The core sector shrank 4.6% in February, according to data released by the industry department, underlining the uncertain path to recovery in Asia’s third largest economy amid a second wave of coronavirus infections.

The de-growth in all eight infra sectors is a reminder that recovery seen until December is behind us, say experts

During the month, output contracted in all eight sectors, including steel (-1.8%) and electricity (-0.2%), after recording growth in the last five months. Refinery products (-10.9%) recorded the sharpest decline in output followed by cement (-5.5%). Among other sectors, coal (-4.4%), crude oil (-3.2%), natural gas (-1%), and fertilizers (-3.7%) also recorded sharp contraction during the month.

The contraction in the eight constituents notwithstanding, an unfavourable base effect is another reminder that the phase of rapid recovery seen until December last year is clearly behind the country, said Aditi Nayar, principal economist, ICRA Ltd.

“The lead indicators such as the core sector, auto output, and non-oil exports have revealed a decidedly mixed trend for February. Based on the available data, we expect the contraction in the IIP (Index of Industrial Production) to deepen to 2-3% in February 2021 from 1.6% in January 2021. Given the sharp base effect, we expect the core sector output to expand by 9-11% in March 2021, which should result in modest growth of around 2% in Q4FY21,” she said.

The United Nations Economic and Social Commission for Asia and the Pacific has projected the Indian economy to grow at 7% in 2021 against a contraction of 7.7% in 2020. “Despite a robust reduction in new covid-19 cases and the start of vaccine roll out, India’s 2021 output is expected to remain below the 2019 level. Meanwhile, maintaining low borrowing costs while keeping non-performing loans in check would be a challenge,” the UN body said on Tuesday.

Fitch Ratings last week upgraded India’s growth projection for FY22 to 12.8% from 11% estimated earlier on a stronger carryover effect, a looser fiscal stance, and better virus containment. The Organisation for Economic Co-operation and Development (OECD) had earlier this month projected that the economy will bounce back to grow at 12.6% in FY22, the highest among G20 countries, aided by additional fiscal support after the covid-19 pandemic pushed the economy into recession. The Economic Survey has estimated FY22 growth at 11%, while the Reserve Bank of India has projected gross domestic product growth at 10.5% for the same year.

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First Published:31 Mar 2021, 11:29 PM IST
HomeNewsIndiaCore sector posts sharpest contraction in six months

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