Core industrial output fall arrested in Sep but index still in negative zone

The deceleration rate in the production of India's eight major industries continued in September even though the fall was contained at much lower levels than previous months, official data showed on Thursday.

As per the data, the Index of Eight Core Industries for September declined by 0.8 (provisional) per cent as compared to September 2019.

This is marked improvement over previous months as the index had declined by a sharp (-) 7.3 per cent (revised) in August, compared to decline of (-) 8 per cent in July.

Due to the Covid-19 related disruptions and lockdown, the core sector maintained a negative growth rate in double digits in each month of the April-June quarter with the fall in April being the sharpest at (-) 37.9 per cent.

Though not comparable, the ECI index had slipped by (-) 5.1 per cent in September 2019.

"The combined Index of Eight Core Industries stood at 119.7 in September 2020, which declined by 0.8 (provisional) per cent as compared to the Index of September, 2019. Its cumulative growth during April to September, 2020-21 has been(-) 14.9 per cent," said the Office of Economic Advisor, DPIIT, on the Index of Eight Core Industries for September 2020.

"Final growth rate of Index of Eight Core Industries for June 2020 is revised to (-) 12.4 per cent."

The Eight Core Industries comprise 40.27 per cent of the weight of items included in the Index of Industrial Production (IIP).

These industries comprise coal, crude oil, natural gas, refinery products, fertilisers, steel, cement, and electricity.

On a sector specific basis, the output of coal, which has a weight of 10.33 per cent in the index, perform better than others showing an increase of 21.2 per cent in September 2020 over the same month of previous year.

But, the output of refinery products, which has the highest weightage of 28.04, declined (-) 9.5 per cent in September 2020 compared to the corresponding month of the last fiscal.

Electricity generation, which has the second highest weightage of 19.85, increased by 3.7 per cent, while the steel sector also showed signs of revival with production registering a 0.9 per cent growth last month compared to negative growth in each of the previous months of current financial year.

The extraction of crude oil, which has an 8.98 weightage, declined by (-) 6 per cent during the month under consideration.

The sub-index for natural gas output, with a weightage of 6.88, declined by (-) 10.6 per cent.

Cement production, which has a weightage of 5.37, slid by (-) 3.5 per cent in the month under review.

Fertiliser manufacturing, which has the least weightage — only 2.63 — also declined by 0.3 per cent.

"The core sector data reflects the fact that further economic contraction seems to have been arrested to a large extent, and that economic activity may pick up gradually. Coal, electricity and steel have displayed a positive bias, which augurs well for the broader economic objectives, and speedier economic recovery," said Joseph Thomas, Head of Research, Emkay Wealth Management.

Aditi Nayar, Principal Economist, ICRA, said: "In line with our expectations, the contraction in the core sector industries narrowed sharply to a mild 0.8 per cent in September 2020, after the stalling of the momentum that was seen in the previous month."

"With the shrinking of the contraction of the core sector output, and the growth displayed by both auto production and non-oil exports, the IIP may well be able to eke out a small growth in September 2020."

Nayar said that the disaggregated performance of the core industries was highly uneven, with sharp improvements in coal, refinery products and cement, amid a worsening in the performance of fertilisers and natural gas in September 2020.

"Encouragingly, coal, electricity as well as steel were able to post a YoY expansion in September 2020," she said.

"The substantial improvement in the core sector performance in September 2020 was driven by the base effect-led uptick in coal production, related to heavy rainfall and labour issues in some mines in September 2019. Accordingly, the expansion in coal output is unlikely to sustain at this robust pace beyond the current month.".