India’s core sector output in May grows 16.8% year-on-year on low base

India’s eight core sectors grew 16.8 per cent year-on-year in May compared to April’s 60.9 per cent jump on account of a weak base the same period last year when factories shut due a nationwide lockdown for coronavirus.

The low base effect continued in May, as the core sector output, captured by the index of eight core industries (ICI), witnessed a 3.75 per cent fall sequentially.

During April-May, the core sector output grew 35.8 per cent as compared to the same period a year ago, data released by the commerce industry ministry showed Wednesday.

The eight sectors–coal, steel, cement, fertilizers, electricity, natural gas, refinery products, crude oil–comprise nearly two-fifths of India’s total industrial production. Barring fertilizers crude oil, the other sectors registered positive growth in May as compared to a year ago period.

Natural gas, refinery, steel, cement grew 20.1 per cent, 15.3 per cent, 59.3 per cent, 7.9 per cent, respectively, in May as compared to last year.

“If this is juxtaposed with other data like the fiscal numbers, it does appear that steel cement did get a fillip from government capex plans. Therefore, infra push could be one real reason for this increase,” said Madan Sabnavis, chief economist at CARE Ratings,.

However, on a sequential basis, steel, refinery products, cement, electricity crude oil witnessed contraction due to restrictions imposed by various state governments during the second wave of the pandemic.

“Even though construction activities were allowed amidst the state restrictions, the cement sector saw the largest sequential moderation in May 2021 (17.6), as well as the deepest pace of contraction relative to May 2019 (15.2%). This may reflect the impact of the second covid surge on rural demand, as well as the YoY decline in the Government of India’s capital outlay in May 2021,” said Aditi Nayar, chief economist at ICRA.

Experts said that factory output is expected to be in the range of 25-30 per cent in May. Factory output data for May will be released over the next two weeks.

“We can expect IIP (index of Industrial Production) growth to also be very impressive though not at the April level. It could be in the region of 20-30%. Core sector growth rates would be impressive in the coming months though will trend downwards,” Sabnavis said.

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