Growth in eight core infrastructure industries hit a 20-month low of 0.1% in October, as fewer working days due to Diwali and an unfavourable base weighed on production.
Given that these core sectors have a combined weight of 40.3% in the index of industrial production (IIP), the growth in the IIP will remain muted in October. Some analysts expect the IIP growth to remain below 3% in October, against 7.8% in the previous month.
However, with the base effect turning favourable again and the government’s capex push expected to prop up the output of sectors like steel and cement, growth in the core infrastructure industries will likely rebound in November and may touch as much as 7%, the analysts said.
The latest data released by the industry ministry on Wednesday showed half of the eight core sectors—crude oil, natural gas, refinery products and cements–recorded contraction in October. In fact, while the output of crude oil shrank for a fifth straight month, that of natural gas contracted for four months in a row. Cement output shrank 4.3%, the first drop in 20 months, while refinery products saw its first contraction in 18 months.
Importantly, the month-on-month seasonally-adjusted growth, too, turned negative, as the core sector output in October came in 2.2% lower than the September level, according to India Ratings principal economist Sunil Kumar Sinha. The spell of unseasonal rains in October may have impacted cement and electricity sectors, he added.
Between April and October, the core sector recorded a growth rate of 8.2% from a year before, aided by favourable base effect and decent performances in some of the months earlier this fiscal.
Ahead of the peak Rabi sowing season, growth in fertiliser stood at 5.4% in October from a year before; but the pace of growth slowed down drastically from 11.8% in September. Steel output, too, rose 4%, against 5.7% in the previous month. In fact, the capex push in recent months, especially by the Central government, has helped the production of steel, analysts said. Also, the recent government move to scrap the export duty on select steel products could boost the production of the metal.
Moreover, the core sector index grew as much as 8.4% in September from the pre-pandemic level (same month in 2019), against 5.6% in the previous month.
However, crude, natural gas and refinery products output shrank 2.2%, 4.2% and 3.1%, respectively, in October. Electricity generation rose just 0.4%, against 11.6% in September. Coal output grew 3.6% in October, compared with 12% in the previous month. Given the roller-coaster ride in recent months, a credible industrial recovery is yet to take firm roots.
Bank of Baroda chief economist Madan Sabnavis termed the latest performance of the core sector “ordinary”. It “does not signal strong recovery in the months to come though the number will improve for sure”, he added. “Cumulative growth of 8.2% does not reflect strength of the core sector and can be interpreted as being more stable. Future prospects will be driven by how infrastructure activity picks up,” he added.