Growth in core infrastructure industries slowed to a three-month low in February but still remained rather strong, at 6%, with seven of the eight industries registering positive expansion. However, the momentum in economic recovery now seems to be waning with deceleration in growth in six of the sectors, barring fertilisers and cement, on a month-on-month basis.
The eight core industries grew by 5.9% in February 2022. According to the data released by the ministry of commerce & industry on Friday, the growth for January 2023 was revised upwards to 8.9% from the previous estimate of 7.8%. The cumulative growth rate of the index of eight core industries during April-February 2022-23 was 7.8% as against 11.1% a year ago.
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Given that these core sectors have a combined weight of 40.3% in the index of industrial production (IIP), analysts expect IIP growth in the month to be at 4.5% in February as against 5.2% in January.
This is amongst the last set of macro-economic data to be released before the meeting of the Monetary Policy Committee from April 3. Figures for collection from the goods & services tax and PMI manufacturing are expected to be released over the next few days. The Reserve Bank of India (RBI) is expected to hike the repo rate by another 25 basis points to 6.75% on April 6, amid persistently high retail inflation, even though economic growth is expected to be subdued in the fourth quarter and the new fiscal year.
“Overall, it appears that the recovery is weak and losing momentum due to the global economic uncertainty. The output of seven sectors stood higher than the pre-Covid level (February 2020) in February 2023, down from eight in the previous month. Even on a month-on-month (seasonally adjusted) basis, the output of eight infrastructure industries declined 1.7% in February 2023 after a gap of three months,” said Sunil Sinha, principal economist, India Ratings and Research.
The growth is expected to moderate further in March as pent-up demand is expected to have eased and unseasonal rains impacted production. India Ratings expects core sector growth to slow down further to around 4% year on year in March 2023, which would take the annual growth for FY23 to a projected 7.4%.
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“With unseasonal rainfall in March 2023 expected to dampen output of coal and electricity, core sector growth may moderate further despite a modestly favourable base effect,” said Aditi Nayar, chief economist, head – research and outreach, Icra.
In February 2023, the growth in the core sector industries was driven by robust growth in fertilisers (22.2%), coal (8.5%) steel (6.9%), cement (7.3%) and electricity (7.6%).
“Fertilisers continue to witness high growth as companies stock up for the depletion in inventories. The negative growth last year added to buoyancy this year,” said Madan Sabnavis, chief economist, Bank of Baroda. The growth in steel and cement have been driven by infrastructure activity in both the government and private sector, while coal growth continues to be in alignment with growth in manufacturing sector that necessitates more power consumption, he further said.
Crude oil was the only sector that registered a contraction in production in February 2023 at 4.9%. It has remained in contraction for the last nine months since June 2022. This was the sharpest contraction in 20 months, Sinha said. Natural gas and refinery production grew by 3.2% and 3.3% respectively in the month.