Pulled down by high base effect and some slowdown in infrastructure, India’s core sector grew to a 20-month low of 0.1 per cent in October 2022, substantially lower than the 8.7 per cent output growth recorded in October last year.

In September, the eight core industries had recorded 7.8 per cent growth, coming back on track after a two-month dip. Only two sectors — crude oil and natural gas — had recorded contraction in output during that month.

For the month under under review, four of the eight core industries — crude oil (-2.2 per cent), natural gas (-4.2 per cent); refinery products (-3.1 per cent); and cement (-4.3 per cent) — remained in the contraction zone. On the other hand, output growth was registered in coal (3.6 per cent); fertilisers (5.4 per cent); steel (4 per cent); and electricity (0.4 per cent) sectors during the month.

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Meanwhile, the Commerce and Industry Ministry said the cumulative growth during April-October 2022 stood at 8.2 per cent as compared to 15.6 per cent in the year-ago period.

The final growth rate of the index of eight core industries for July 2022 has been revised to 4.8 per cent from 4.5 per cent earlier. The eight core industries comprise 40.27 per cent of the weight of items included in the index of industrial production (IIP).

High base effect

Madan Sabnavis, Chief Economist, Bank of Baroda, said while this is a sign of weakening activity, the high base effect has also had a role to play as growth was 8.7 per cent last year. “Hence, given that growth last year had moderated from November onwards, we may expect a better performance from the core sector. Given a weight of around 40 per cent in IIP, we could expect growth in industrial production to also be low at 2-3 per cent (provided consumer goods show a revival),” he said.

On the whole, the performance has been ordinary and does not signal strong recovery in the months to come though the number will improve for sure, according to Sabnavis. “Cumulative growth of 8.2 per cent does not reflect the strength of the core sector and can be interpreted as being more stable. Future prospects will be driven by how infrastructure activity picks up,” he said.

November expectation

Sunil Kumar Sinha, Principal Economist, India Ratings, and Paras Jasrai, Analyst, said: “While crude oil and natural gas output have declined consecutively for five and four months respectively, the output in refinery products and cement sectors contracted for the first time after a gap of 18 and 20 months, respectively.”

The spell of unseasonal rains in October may have impacted the cement and electricity sectors. Even the momentum (m-o-m seasonally-adjusted growth), turned negative as the core sector output in October came in 2.2 per cent lower than September. This points toward the fragility of the ongoing recovery, they added.

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The dismal y-o-y growth means industrial output growth would also be lacklustre and could be under 3 per cent in October (as the weight of core sector in IIP stands at 40.2 per cent), according to India Ratings.

“With the sustained capex support from States and the Centre, the output in steel and cement sectors is expected to do well in the coming months. All in all, Ind-Ra expects the core sector to grow at around 7 per cent y-o-y in November,” Sinha said.