Growth of core sector slumps to 2.6% in April on sluggish infra performance

Growth in the core sector of the economy fell to 2.6 per cent in April, down from 4.9 per cent in March, as most sectors saw growth tapering off while the usual performers in the infrastructure segment put up a poor show.
 
Data released by the commerce and industry ministry on Tuesday showed that the eight core sector industries – coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity – saw growth slide in April after a rebound in March.
 
However, contributing almost 40 per cent to the country’s total industrial production, output of the core sector had weakened for four-straight months at the end of the last financial year. As a result, annual growth stood at 4.3 per cent in FY19, the same as the previous year.
 
The fall in April was broad-based as three sectors contracted while three others saw rate of growth slow down. The infrastructure segment, which had over the past six months performed well, saw growth fall for both steel and cement production.

 
Steel output growth was 1.5 per cent in April, down from a 3-month high of 6.7 per cent in March. On the other hand, cement production slumped to only a 0.8 per cent growth after 11-month high of 15.7 per cent in March.
 
Elsewhere in the energy space, lower prices continued to impact crude oil production as well as exports of refinery products. Crude oil production went down by 6.9 per cent in April, the highest margin of contraction in FY19. The sector has consistently seen contraction every month over the past financial year. Natural gas production also contracted after a 5-month growth streak, falling by 0.8 per cent. In March, natural gas output had risen by 1.4 per cent.
 
Refinery products, which command almost 30 per cent of the core sector index, rose by 4.3 per cent in April, the same as March, when it had broken a contractionary spell that had gripped the sector since December, 2018.
 
Having the second-largest weightage in the core sector index –electricity – saw growth rise to 5.8 per cent, up from 1.4 per cent in March. Growth in the electricity sector had dipped to its lowest point in the last 71 months in January. This had come as a surprise for economists and a low growth in coal output had been blamed. However, growth has steadily risen since then.
 
“The core sector industries that have performed erratically on monthly basis and poorly on an annual basis in FY19 are crude oil, natural gas and fertiliser. Performance of the electricity segment has also been moderate in FY19. In fact, plagued by NPAs, electricity growth remained subdued since FY15,” said Sunil Kumar Sinha, director, public finance & principal economist at India Ratings said.
 
However, coal output has disproportionately risen since January. Production rose by 9.1 per cent in March, but only 2.8 per cent in April.
 
“Coal and power have done relatively better which is a good sign. This also means that the index of industrial production growth or IIP growth will be subdued in the range of 2-2.5 per cent. Government infra spending in the first quarter would be low key and this will drive core sector growth in the coming month,” Madan Sabnavis, chief economist at CARE Ratings said.
 
Finally, fertiliser production growth suddenly turned negative in April, contracting by 4.3 per cent. Growth had gained pace in March, rising by 4.3 per cent. The sector had bounced back in January after three successive months of fall. Higher fertiliser growth has come over a negative base effect last year. This can be attributed more to restocking, to an extent, as the main demand season for sowing is complete, economists said.