Core sector output slows to 3-month low of 6% in Feb, crude production dips

Six of eight key infrastructure industries report sequential deceleration

Growth in production of eight infrastructure industries — which form part of the core sector — declined to a three-month low of 6 per cent in February, with six industries reporting a sequential fall in output growth.

The data released by the industry department on Friday showed that barring cement (7.3 per cent) and fertilisers (22.2 per cent), growth in output in the five sectors decelerated sequentially.

They are coal (8.5 per cent), electricity (7.6 per cent), steel (6.9 per cent), natural gas (3.2 per cent) and refinery products (3.3 per cent). 

Crude oil output, however, continued to contract for the ninth consecutive month, shrinking to 4.9 per cent in February.

Sunil Sinha, principal economist at India Ratings and Research, said it appears that the recovery is weak and losing steam due to the global economic uncertainty.

“The output of seven sectors stood higher than the pre-Covid levels (February 2020) in February 2023, down from eight in the previous month. Even on a month-on-month (seasonally-adjusted) basis, the output of eight infrastructure industries declined 1.7 per cent in February 2023 after a gap of three months,” he said.

Madan Sabanvis, chief economist at Bank of Baroda, said growth in fertiliser output was due to companies stocking up for the depletion in inventories, further aided by a low base.

And, growth in the steel and cement sectors was driven by infrastructure activity in both the government and private sectors. In the completion of projects, the private sector became active towards the end of the year.

“The growth in coal and electricity continues to be in alignment while growth in the manufacturing sector necessitates more power consumption. The contraction in crude oil production was due to low international prices. This made it economical to import oil from overseas markets,” Sabanvis added.

The eight core industries account for 40.27 per cent of the weighting of items included in the Index of Industrial Production (IIP). “With these figures, IIP growth for the month (February) can be expected at 4.5 per cent,” said Sabanvis.

The cumulative growth rate of the core sector during April-February 2022-23 was 11 per cent.

The Organisation for Economic Cooperation and Development (OECD) — in its latest interim outlook — revised upwards growth estimates for India by 20 basis points (bps) to 5.9 per cent for FY24.

“In India, GDP growth for 2023 is projected to be 5.9 per cent, due to weak external demand and high borrowing costs, while inflation will need to be monitored closely. The agricultural sector has seen an increase in yields and a continuation of minimum support prices for various products.

India will also benefit from an improved investment climate brought on by a reduction in corporate taxes, and new incentives for tax compliance,” the OECD said in its Economic Outlook for Southeast Asia, China and India.”