Economy

Core sector shrinks for 5th month in July at 9.6%

Our Bureau New Delhi | Updated on August 31, 2020

Better than -12.9% in June; fertiliser, only segment to grow

With the phased easing of the Covid lockdown, the performance of the eight core industries improved a tad in July, though still in contraction at (-)9.6 per cent, compared to (-)12.9 per cent in June. In July 2019, the core sector had expanded 2.6 per cent.

The eight core industries of coal, crude oil, natural gas, refinery products, steel, cement, fertilisers and electricity had contracted by 22 per cent in May and 37.9 per cent (revised) in April. During April-July 2020, the core industries’ cumulative output contracted 20.5 per cent compared to a growth of 3.2 per cent in the same period last year.

Fertiliser, an exception

According to data released by the Commerce and Industry Ministry on Monday, ‘fertiliser’ was the only core sector industry to record an increase in July at 6.9 per cent (1.5 per cent in July 2019).

All the other segments reported a contraction in July — steel (-16.4 per cent), refinery products (-13.9 per cent), cement (-13.5 per cent), natural gas (-10.2 per cent), coal (-5.7 per cent), crude oil (-4.9 per cent) and electricity (-2.3 per cent).

Commenting on the latest core industries data, Madan Sabnavis, Chief Economist, CARE Ratings, said: “Given the relationship between core sector and IIP growth, the latter can be expected to contract 12-14 per cent for July.”

Sabnavis highlighted that refinery products contracted 13.9 per cent mainly due to lower demand in both domestic and global markets. This gets reflected also in domestic crude oil production, he said. On the positive side, the negative growth in power came down to 2.3 per cent from the double-digit numbers in the earlier three months. This reflects resumption of industrial and business activity leading to a pick up in commercial demand which again gets reflected in similar patterns in coal.

Aditi Nayar, Principal Economist, ICRA, said that the mild improvement in the eight core sectors in July trailed ICRA’s expectation (of -7.2 per cent), adding to the view that the momentum of the recovery stalled in that month partly on account of localised lockdowns. In particular, the performance of refinery products and cement worsened in July compared to the previous month, highlighting the unevenness in the sectoral recovery patterns, she said.

“Based on the available trends for the core sector, auto production and merchandise exports, we expect the contraction in the Index of Industrial of Production to ease to 7-11 per cent in July from 16.6 per cent in June,” Nayar said.

Published on August 31, 2020

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