Recovery uncertain: Core infra sectors shrink 9.6% in July

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September 1, 2020 6:15 AM

The International Monetary Fund (IMF) has already predicted a 4.5% contraction for the Indian economy in FY21 and a 4.9% decline in 2020 global GDP, warning that the Covid-19 outbreak has plunged the world economy into its worst recession since the Great Depression in 1930s.

The contraction eased for a fifth straight month through July, and production gained momentum after lockdown curbs were eased substantially from June.

Contraction in eight key infrastructure industries narrowed to 9.6% on year in July from a 12.9% y-o-y fall witnessed in the previous month, but prospects of a sustained recovery still remain uncertain, given the fragile state of demand in the economy.

The contraction eased for a fifth straight month through July, and production gained momentum after lockdown curbs were eased substantially from June. Since these core infrastructure sectors make up for 40% of the index of industrial production, the IIP, too, may see an improvement in July. However, as pointed out by analysts, a sustained industrial recovery warrants a revival in demand, which, at the moment, seems patchy.

The industry ministry data released on Monday showed that barring fertiliser, which recorded a 6.9% rise due to a pick-up in demand during the summer sowing, all other sectors witnessed a fall in July. The output of steel shrank by 16.4% in July, against a 25.4% drop in June but cement saw the contraction widening to 13.5% from 6.8% in the previous month. The fall in the output of electricity stood at 2.3% in July, refinery products 13.9%, natural gas 10.2%, crude oil 4.9% and coal 5.7%.

The International Monetary Fund (IMF) has already predicted a 4.5% contraction for the Indian economy in FY21 and a 4.9% decline in 2020 global GDP, warning that the Covid-19 outbreak has plunged the world economy into its worst recession since the Great Depression in 1930s.

Last month, the IMF said some key indicators were showing signs of plateauing of economic activity in India, as the positive impact from unlock was not as robust as the negative impact of the lockdown.

The government had announced a Rs 21-lakh-crore relief package up to May and followed it up with the plan, with an estimated cost of Rs 90,000 crore more, to extend free grain supply by another five months through November to soften the Covid blows. It also plans to roll out more measures in the coming months to reverse a slide in economic growth.

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