Aided by statistical base effect and some ramp up in government expenditure, the output of eight core industries’ catapulted to a 32-month high of 6.8 per cent in March 2021.

The eight core industries — coal, crude oil, natural gas, refinery products, fertilisers, steel, cement, steel and electricity — had contracted 8.6 per cent in March last year. It had contracted 3.8 per cent in February 2021.

For the entire April-March 2021, core industries output contracted 7 per cent, an official release said. This is the first time in last eight years that the annual core sector output has seen a contraction.

Meanwhile, economists were quick to highlight that the growth of 6.8 per cent in March 2021 must be interpreted with caution and this will be the theme in the next two months too.

“March, April and May growth number for core sector and industrial growth was expected to be high and misleading as they come on the back of sharp declines registered last year. In fact March was just the beginning of the lockdown which pushed back economic activity after which there were even sharper declines,” Madan Sabnavis, Chief Economist, CARE Ratings, told BusinessLine .

Of the eight core industries, coal, crude oil, refinery products and fertilisers saw a contraction during the month under review. Natural gas output was up 12.3 per cent. Steel, cement and electricity have all registered growth rates of above 20 per cent during March 2021.

While cement output grew 32.5 per cent, steel output recorded 23 per cent. The statistical effect pushed it up with cement recording a contraction of 25.1 per cent in March 2020 and steel output contracting 21.9 per cent in March 2020.

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However, also end-of-the year phenomenon of infra projects being on track did provide impetus to cement and steel in particular. The Centre and States have been expediting their capex which gets reflected in these numbers, Sabnavis said. “In fact for steel and cement, the fact that they fell sharply in March 2020 it means that even with 20 per cent plus growth in March 2021, the output levels would be virtually unchanged or decline marginally,” he said.

IIP growth forecast

Index of Industrial Production (IIP) growth for March is likely to be closer to the double digit mark given the decline of 16.7 per cent last year, according to Sabnavis.

Aditi Nayar, Chief Economist, ICRA , said that despite the base effect led jump in core sector growth to 32-month high of 6.8 per cent in March 2021, the pace of expansion was weaker than ICRA’s forecast of a 10.0 per cent expansion, with a surprisingly sharp contraction in coal, and milder de-growth in fertilisers, crude oil and petroleum products.

The low base of the lockdown would push up the YoY expansion of the index of eight core industries to a sharp 50-70 per cent in April 2021, with exceptionally high growth expected in cement and steel, she said.

“However, we have observed a slackening in the sequential momentum in April 2021 in electricity demand, vehicle registrations, and generation of GST e-way bills, revealing the impact of the recent surge in Covid infections and localised restrictions. For instance, after a YoY expansion of 48 per cent in electricity demand at all-India level during Apr 1-9, 2021 on the low base, the pace moderated to 36 per cent during April 10-25,” Nayar said.

Based on the available data, ICRA has projected the Index of Industrial Production to record a sharp growth of 17.5-25.0 per cent in March 2021 (-0.9 per cent in January 2021; -3.6 per cent in February 2021).

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