Core sectors’ growth slows to 4.3% in March

Output from India’s eight core sectors grew by 4.3% in March, moderately lower than the 6% growth recorded in February, but still reflecting the second highest growth rate over five months.   

Fertilizers’ production recovered sharply to grow 15.3% year-on-year after two months of contraction, though this was on a low base as output had declined 5% in March 2021.  Cement production grew 8.8%, natural gas 7.6% and refinery products 6.2%, while Steel output increased 3.7%. Overall core sectors’ output had grown by a sharp 12.6% a year ago.

Coal output contracted by a marginal 0.1% in March, while crude oil production shrank by 3.4%, the sharpest fall in ten months. Electricity generation expanded at the fastest pace in seven months at 4.9%. The eight core industries comprise 40.27% of the Index of Industrial Production (IIP).

“The first signs of the power problem that we have today could be seen in a decline in coal output by 0.1% over the 0.3% growth in March 2021,” pointed out Bank of Baroda chief economist Madan Sabnavis.

Though the healthy 8.8% uptick in cement output can be attributed to the government’s infrastructure spending push, Mr. Sabnavis said steel output growth was still weak at 3.7%. The bank expects IIP growth to be around 2.5%-3% in March as higher inflation and rising fuel prices would affect consumption revival.

Rating agency ICRA expects IIP to grow about 3% to 3.5%, despite a slowdown in core sector output growth as well as a non-oil merchandise exports during March.

“The pace of core sector growth slowed to a sedate 4.3% in March 2022, in line with our forecast of 4.4%, with a slowdown in five of the eight constituents amid an encouraging pickup in fertilizers, cement and electricity,” ICRA chief economist Aditi Nayar noted, adding that output from all sectors except crude oil and fertilizers was above pre-COVID levels.  

“Going forward, the rebound in economic activity would have provided a fillip to the core sector. However, the overall outlook has got subdued by the soaring raw material prices in international markets that could pressurise profit margins for domestic producers and constrain private sector investment,” said CARE Ratings chief economist Rajani Sinha.