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Aided by base effect, the eight core industries output expanded on expected lines in May 2021 at 16.8 per cent, albeit much lower than the 61 per cent recorded in April 2021. In May last year, core industries output had contracted 21.4 per cent.
With the core sector accounting for 40.27 per cent of the Index of Industrial Production (IIP), there is now widespread expectation that factory output growth measured by IIP will see substantial moderation in May 2021 from the high of 134 per cent recorded in April 2021.
Meanwhile, the Centre has pegged the April-May 2021 core sector growth at 35.8 per cent as compared to the corresponding period last year. The core sector growth for February 2021 has now been revised to (-) 3.3 per cent from provisional level of (-) 4.6 per cent.
For the month under review, the production of coal (6.9 percent); natural gas (20.1 per cent); refinery products (15.3 per cent); steel (59.3 per cent); cement (7.9 per cent) and electricity industries (7.3 per cent) increased in May 2021 over the corresponding month of last year. Two industries — crude oil and fertilisers— saw a contraction of 6.3 per cent and 9.6 per cent respectively, an official release said.
Base effect issue
Madan Sabnavis, Chief Economist, CARE Ratings, said: “Quite on expected lines, the core sector data shows a high increase of 16.8 per cent for this segment which constitutes nearly 40 per cent of the IIP. The numbers are misleading to an extent due to the base effect as last year there was a total lockdown. Two of the 8 segments: crude oil and fertilisers registered negative growth rates. Natural gas, refinery and steel witnessed double digit growth rates. 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.”
One can expect IIP growth to also be very impressive, though not at the April level. “It could be in the region of 20-30 per cent; core sector growth rates would be impressive in the coming months, though will trend downwards,” he said.
Aditi Nayar, Chief Economist at ICRA, highlighted that the core index in May was a substantial 8 per cent lower than the pre-Covid level a pate 2019, led by all the components except natural gas. Nevertheless, the performance of steel and coal in May exceeded our forecast, with the former likely to have been driven by healthy exports.
“Based on the core sector data as well as the performance of other high-frequency indicators such as auto production, exports and generation of GST e-way bills, we expect the IIP growth to moderate substantially to 20 to 25 per cent in May 2021 from the high of 134.4 per cent in April 2021,” she added.
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