India’s core industrial output plunges by over 23% in May
Output pace of India”s eight major industries plunged in May 2020 by over 23 per cent, official data showed on Tuesday.
However, the rate of fall in the Index of Eight Core Industries decelerated on a sequential basis on account of partial opening of economic activities during May 2020.
On a sequential basis, the Index of Eight Core Industries for May 2020 declined by 23.4 per cent (provisional) compared to decline of 37 per cent (provisional) during the previous month of April 2020.
The eight core industries comprise coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity. The ECI comprises over 40 per cent of the weight of items included in the Index of Industrial Production (IIP).
“In view of nationwide lockdown during April and May 2020 due to Covid-19 pandemic, various industries viz. coal, cement, steel, natural gas, refinery, crude oil etc. experienced substantial loss of production,” the Ministry of Commerce and Industry said in a statement.
“Final growth rate of Index of Eight Core Industries for February 2020 is revised at 6.4 per cent.”
On sector-specific basis, the output of refinery products, which has the highest weightage of 28.03, declined (-)21.3 per cent in May 2020 compared to the corresponding month of the last fiscal.
Similarly, electricity generation, which has the second highest weightage of 19.85, inched lower by (-) 15.6 per cent.
Steel production, the third most important component with weightage of 17.92, was lower by (-) 48.4 per cent during the month under review, while coal mining, with a 10.33 weightage, edged-lower by (-) 14 per cent.
The extraction of crude oil, which has an 8.98 weightage, declined by (-)7.1 per cent during the month under consideration.
The sub-index for natural gas output, with a weightage of 6.88, declined by (-)16.8 per cent.
Cement production, which has a weightage of 5.37, slide by (-) 22.2 per cent in the month under review.
Fertiliser manufacturing, which has the least weightage — only 2.63 — rose by 7.5 per cent last month.
“The sharp decline in the Index of eight core industries in April and May this year, is not surprising. Although the estimates in May show a marginal uptick over the April estimate, the cumulative value of the index for eight core industries declined by 30 per cent,” said M.Govinda Rao, Chief Economic Advisor, Brickwork Ratings.
“Maximum decline was seen in steel followed by cement, mainly due to virtual absence of construction activity. The recovery is expected to be gradual as the lockdown is progressively eased. However, the supply chain disruptions due to restrictions on imports from China could make the recovery even slower.”
ICRA Principal Economist Aditi Nayar said: “The pace of contraction in the core sector industries narrowed appreciably to 23.4 per cent in May 2020, bettering our forecast of 25-30 per cent. The improvement relative to April 2020 was chiefly driven by cement, steel, electricity and fertilisers, in addition to modest improvements in coal, natural gas and refinery production. Only crude oil output recorded a worse performance in May 2020 relative to April 2020.”
“Based on the available trends, we expect the pace of contraction in the Index of Industrial Production to narrow to around 35-45 per cent in May 2020 from 55.5 per cent in April 2020.”