India's core industries output sees marginal 0.1% rise in January

The core sector index, which measures output of eight infrastructure industries, rose marginally by 0.1 per cent in January, indicating a wobbly recovery from the pandemic shock. Output in five of the eight crucial sectors fell on a year-on-year (YoY) basis, according to data released by the Ministry for Commerce and Industry on Friday.

Growth in core sector output in January was lower than the 0.2 per cent expansion seen in December. In fact, the number for December was revised upwards from a 0.3 per cent contraction estimated earlier.

This index has a 40.27 per cent weighting in the Index of Industrial Production (IIP) and captures output in eight infrastructure industries — coal, electricity, crude oil, natural gas, steel, cement, fertilizers, and refinery products.  

“Based on the available data for the core sector, merchandise exports and auto output, we project the growth in IIP to remain subdued at 0.5-1.5 per cent in January 2021,” said Aditi Nayar, principal economist, ICRA Ratings.

The core sector index benefitted from the performances of fertilizer, steel, and electricity sectors, which posted an expansion in output of 2.7 per cent, 2.6 per cent, and 5.1 per cent, respectively.

However, output contracted in the coal sector by 1.8 per cent, crude oil by 4.6 per cent, natural gas by 2 per cent, refinery products by 2.6 per cent, and cement by 5.9 per cent. 

Decline in coal output could be attributed to the high base of last year, when output expanded by 8 per cent.

“While the growth in electricity generation remained steady, the data released by POSOCO reveals a modest decline in demand growth to 4.8 per cent in January from 5 per cent in December,” said Nayar. She added that between February 1 and 25, growth in electricity demand eased further to a modest 3.2 per cent YoY.

In the April to January period, the index of eight core sectors declined by 8.8 per cent, compared with a 0.8 per cent expansion in the corresponding period last year.

“Weakness in core infrastructure industries has a bearing on the overall industrial output. If core infrastructure industries growth is an indication, then IIP growth in January would barely manage to slip into positive territory,” said Sunil Sinha, principal economist, India Ratings and Research.

In FY21, core infrastructure industries have posted growth in only three months — September, December, and January.

IIP grew by just 1 per cent in December, indicating weak growth amid inflationary pressure in non-food articles. 

This may force the Monetary Policy Committee of the Reserve Bank of India to remain accommodative going forward.