India's core sector output in May grows 16.8% year-on-year on low base

Steel, refinery products, cement, electricity, crude oil witnessed contraction due to restrictions imposed by various state governments

The output of the eight-industry core sector grew 16.8 per cent year-on-year in May as against a sharp jump of 60.9 per cent in April on account of a weak base owing to factories remaining shut due to the stringent nationwide lockdown last year.

Even as the low base effect continued in May, the impact of the second wave of the pandemic was visible, as core sector output, captured by the index of eight core industries (ICI), witnessed a 3.75 per cent fall sequentially.

Several states imposed lockdown during April-May to control the spread of the second wave of Covid-19.

During April-May, core sector output grew 35.8 per cent over the same period a year ago, as compared to de-growth of 29.4 per cent during the same period a year ago, the data released by the commerce and industry ministry showed.

The nature of the lockdown imposed during FY21 and FY22 was different. As a result, the impact of the second wave on industrial output, primarily in May, was limited.

The eight sectors -- coal, steel, cement, fertiliser, electricity, natural gas, refinery products, and crude oil -- comprising nearly two-fifths of India’s industrial production. According to the data released by the government on Wednesday, of the eight sectors, barring fertiliser and crude oil, all sectors rang up growth in May over the year-ago period.

The production of natural gas, refinery, steel, and cement grew 20.1 per cent, 15.3 per cent, 59.3 per cent, and 7.9 per cent, respectively, in May over last year.

“If this is juxtaposed with other data like the fiscal numbers, it does appear that steel and cement did get a fillip from government capex plans. Therefore, infra push could be one real reason for this increase,” said Madan Sabnavis, chief economist at CARE Ratings.

However, on a sequential basis, steel, refinery products, cement, electricity, and crude oil witnessed a contraction due to restrictions imposed by state governments during the second wave of the pandemic.

“Even though construction activities were allowed amid state restrictions, the cement sector saw the largest sequential moderation in May 2021 (17.6 per cent) as well as the deepest pace of contraction relative to May 2019 (15.2 per cent). This may reflect the impact of the second Covid surge on rural demand, as well as the YoY decline in the government of India’s capital outlay in May 2021,” said Aditi Nayar, chief economist at ICRA.

Fertiliser output fell to a 14-month low of (-) 9.6 per cent on year. However, on a sequential basis, it grew 16 per cent. The production rate witnessed an uptick due to an expectation of higher demand ahead of the kharif sowing season.

Experts had said factory output (index of industrial production, or IIP) was expected to be in the range of 25-30 per cent in May. The factory output data for May will be released over the next two weeks.

“The impact of the base -effect will continue in the next few months but will fade subsequently. The IIP (index of Industrial Production) for the month of May 2021 could range between 20 per cent and 30 per cent though one should not read much into it,” Sabnavis said, adding that as economic activities were not significantly affected in June, the output of the core sector will witness an improvement.