Core sector contracts by 38.1% in April 2020
In view of the nationwide lockdown due to Covid-19 pandemic and the substantial production loss experienced by a number of industries, the core sector production in April 2020 contracted at its fastest pace in the last eight years. The production in the eight-core industries contracted by 38.1 per cent in April 2020 compared with 5.2 per cent in the corresponding month a year ago. All the eight industries of the core sector have experienced negative growth in April 2020. The contraction in March 2020 has been revised lower to 9 per cent from the earlier 6.5 per cent largely on account of downward revision in steel output. The de-growth of much sharper level was seen in July 2012 when the negative growth was 67.5 per cent. The core sector growth for FY20 has been consequently revised lower from 0.6 per cent to 0.4 per cent.
The growth in coal production declined to a six-month low of 15.5 per cent in April 2020 compared with growth of 4 per cent in March 2020. Lower production can largely be attributed to lower power demand and build-up of inventories in the coal mines and power plants.
Production of crude oil continued to witness a contraction for 29th consecutive month. Crude oil production contracted by 6.4 per cent in April 2020 largely on account of closure of some oil wells and restriction in labour movements for field operations.
Natural gas and refineries both recorded double digit contraction of 19.9 per cent and 24.2 per cent respectively in April 2020. Steep decline in the fuel consumption in April 2020 and lower offtake of natural gas by consumers dragged production lower in April. The contraction in both has been the highest since the start of the 2011-12 series.
The contraction in cement and steel production was the sharpest and the fall was more than 80 per cent in both industries. Halt in production of user industries like auto and construction led to contraction in steel production. Nation-wide lockdown and reverse labour migration had an impact on construction activities owing to which production of both cement and steel declined. Both the industries recorded the steepest fall since the start of the new series.
Fertilizer production contracted by 4.5 per cent in April 2020 compared with 12 per cent recorded a month ago. Shortage in raw material availability and labour constraints owing to the pandemic impacted fertilizer production.
Electricity production also contracted at its fastest pace since the start of the new series at 22.8 per cent in April 2020 owing to the fall in electricity demand from commercial and industrial sector, which accounts for 50 per cent of the demand.
CARE Ratings' View The nation-wide lockdown and the reverse labour migration have had an adverse impact on the production activity in the month of April 2020. The continuation of the lockdown in May 2020, albeit some relaxations means that the negative growth in core sector production will continue but could be marginally better than April 2020. One can expect a noteworthy decline in IIP growth for April 2020 given that core sector accounts for almost 40 per cent of the total IIP basket.
Courtesy: CARE Ratings
ABOUT THE AUTHORS: The article is authored by Sushant Hede, Associate Economist at CARE Ratings. He can be contacted at: firstname.lastname@example.org | 91-22-68374348..
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