Economy

Core sector contraction narrows to 0.8% in Sept

Our Bureau New Delhi | Updated on October 29, 2020 Published on October 29, 2020

Output contracted 14.9% in April-Sept 2020 compared to 1.3% growth last year

In an encouraging sign, the eight core industries output contracted at a much lower rate of 0.8 per cent in September 2020, collating well with the higher consumer spending seen in early October. This is the seventh straight month of contraction since March when the core industries contracted 8.6 per cent. However, the latest print is much better than the revised contraction of 7.3 per cent seen in August 2020. The eight core industries had contracted 8 per cent in July 2020 and (-) 12.4 per cent (revised) in June this year.

For the April-September 2020, the eight core industries output contracted 14.9 per cent compared to 1.3 per cent growth seen in same period last year.

The disaggregated performance of the core industries was highly uneven, with sharp improvements in coal, refinery products and cement, amid a worsening performance of fertilisers and natural gas in September 2020. Encouragingly, coal, electricity as well as steel were able to post a YoY expansion in September 2020.

The eight core industries are coal (21.2 per cent), crude oil (-6 per cent), natural gas (-10.6 per cent), refinery products (-9.5 per cent), steel (0.9 per cent), electricity (3.7 per cent), cement (-3.5 per cent) and fertilisers (-0.3 per cent).

Commenting on the latest core industries data, Aditi Nayar, Principal Economist, ICRA said: “With the shrinking of the contraction of the core sector output, and the growth displayed by both auto production and non-oil exports, the IIP may well be able to eke out a small growth in September 2020”.

Key drivers of recovery

While many lead indicators have displayed signals of a strengthening economic recovery in September 2020, ICRA has cautioned that the sustainability of the upturn may not be universal, and await signs of its durability.

The substantial improvement in the core sector performance in September 2020 was driven by the base effect-led uptick in coal production, related to heavy rainfall and labour issues in some mines in September 2019. Accordingly, the expansion in coal output is unlikely to sustain at this robust pace beyond the current month, Nayar said. With improved mobility of people and goods, the contraction in refinery products halved in September 2020, an encouraging trend that may continue in the immediate term, she added.

Madan Sabnavis, Chief Economist, CARE Ratings, said that core sector data reflects work in the infra space, and the fact that coal, electricity and steel have registered positive growth does indicate that the unlock programme has had a positive impact in this segment.

Higher growth in power of 3.7 per cent can be linked with more business activity in operation while coal growth of 21.2 per cent goes along with higher demand for electricity as well as steel, he said.

While cement growth remains negative at 3.5 per cent, steel has turned over marginally at 0.9 per cent. This corroborates the picture revealed by some of the steel companies which have seen good demand especially from construction and auto sectors, Sabnavis said.

Negative growth in the oil segment — oil, gas and petrol products — is reflective of absence of revival in the transport segment. This should improve in the coming months with relaxation in lockdown measures, according to Sabnavis.

IIP growth for this month may be expected to be between -2-5 per cent, according to CARE Ratings.

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on October 29, 2020
This article is closed for comments.
Please Email the Editor