Core sector output shrinks 6.5% in March as Covid-19 takes its toll on the economy

NEW DELHI: India’s core sector output contracted 6.5% in March, marking the worst performance by the key infrastructure areas going back to 2005, as the nationwide lockdown to combat the spread of Covid-19 stalled the economy.

The contraction is a sharp reversal from 7.2% growth in February, an 11-month high, data released by the commerce department on Thursday showed. For the full year, infrastructure industries grew 0.6% against 4.4% last year.

“The core sector contraction in March represents the worst performance in the current series, even though it is surprisingly not as deep as we had feared,” said Aditi Nayar, principal economist, ICRA Ltd.

IIP to Take a Hit Too

“With the lockdown in place throughout April, which is expected to have severely curtailed production in many core sectors, the contraction in core sector output is likely to worsen to alarming levels in that month.”

The existing series, with FY12 as the base, began in April 2012. The contraction is the steepest even in the old series with the base year of FY05 that began in April 2005.

The Index of Eight Core Industries captures the output of coal, crude oil, natural gas, steel, cement, fertilisers, electricity, and refinery products. The index has a 40.27% weight in the Index of Industrial Production (IIP), suggesting a sharp contraction in that indictor as well in March. “Associated with this growth is the IIP growth rate, which can be expected to be in the negative region for March, given that the normal ramp up of production which happens towards the end of March did not happen,” said Madan Sabnavis, chief economist at CARE Ratings.

Crude oil production contracted 5.5%, natural gas 15.2%, refinery products 0.5%, fertilisers 11.9%, steel 13%, cement 24.7% and electricity 7.2% during the month. Coal was the only sector that grew 4%.

ICRA expects industrial output to shrink 15-20% in March based on the contraction in the core sector, auto production and non-oil merchandise exports.

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