Core sector output shrinks for third straight month in May, shrinks 23.4%

In May, the production of refinery products, a key export item, took the biggest hit. Output fell by 21.3 per cent after contracting by 24.2 per cent in April

The output of the eight core sectors of the economy shrank 23.4 per cent in May, against 37 per cent in the previous month, as factories remained hamstrung by a lack of labour and cash shortages owing to the nationwide lockdown. 

Experts say the aftershocks of the lockdown will continue to weigh on domestic industry, which is expected to post a lower but certain contraction in coming months.

ICRA predicts industrial production may see a contraction of 35-45 per cent in May, down from 55.5 per cent in April.

The updated figures released by the Commerce and Industry Ministry on Tuesday showed seven of the eight core sectors continued to contract in May.

The infrastructure segment saw the biggest production shocks among all, despite the fall slowing.

Steel production tumbled by 48.4 per cent after April’s 78.7 per cent fall. However, cement output shrank by 22.2 per cent following an 85.3 per cent fall in April.

Both had been in the grip of volatility even before the lockdown but social-distancing norms have meant construction has been suspended across the country.

“The sharp narrowing in the pace of contraction of cement and steel is heartening, suggesting rural construction demand remains supportive of these sectors. Nevertheless, cement capacity utilisation is projected by ICRA to shrink to 50 per cent in FY21, from 68 per cent in FY20. Moreover, steel capacity utilisation is projected to decline to 58 per cent in FY21, from 77 per cent in FY20,” said Aditi Nayar, principal economist, ICRA.

Crude oil shock

In May, the production of refinery products, a key export item, took the biggest hit. Output fell 21.3 per cent after contracting 24.2 per cent in April. The sector had remained volatile throughout FY20, but senior officials had said solid recovery in production was underway as key refining units pushed out more. 

Elsewhere in the energy space, crude oil production continued its downward spiral for the 20th month on the trot. However, production saw a relatively small hit in May, contracting 7.1 per cent after the 6.4 per cent fall in the previous month. “Low demand due to the pandemic, declining drawdowns from aging fields, the closure of wells in Western offshore due to less offtake by GAIL, restriction in movements for field operations in onshore fields led to decline in production. The blowout at an oilfield in Assam on May 27 also weighed on production,” said Madan Sabnavis, chief economist, CARE Ratings.