Core sector output expand at 11 month high
In the month of February 2020, the output of eight core industries grew at a fastest pace in FY20 so far. Core sector output expanded at 11 month high of 5.5 per cent, 3.3 per cent higher than the 2.2 per cent growth seen in the same month a year ago. It was 4.1 per cent higher than a month ago level. For January 2020, the growth in core sector output has been revised downwards from estimated 2.2 per cent to 1.4 per cent as per revised estimates.
The eight core industries comprise of 40.27 per cent of the weights included in the index of industrial production (IIP) basket. The growth during the month has been aided by increased output in the 5 out of 8 industries namely coal, refineries, fertilisers, cement and electricity.
During the first 11 months of FY20 i.e., April 2019 - February 2020, the production in the eight core industries expanded at lacklustre 1 per cent, as against the 4.2 per cent growth seen in the corresponding period a year ago.
Coal production grew at fastest pace in nearly one and half year having grown at 10.3 per cent, 2.9 per cent higher than the 7.4 per cent growth a year ago and 3.4 per cent higher than the 6.9 per cent growth seen in January 2020. The resumption of extraction activities post delayed monsoons this year has resulted in the increase in the production by the industry along with scaled up production by one of the major market player.
In February 2020, Crude oil production contracted successively for more than 2 years (27 months). The production declined by 6.5 per cent, higher contraction compared with de-growth of 6.1 per cent in February 2020 and lower than contraction by -5.3 per cent seen a month ago. Sustained decline in the crude oil prices globally and high inventories are seen to weigh on the production during the month.
The production of the natural gas too has contracted for 11 months in a row by 9.6 per cent as against 3.8 per cent growth seen in February 2019 mainly on account of subdued prices and inventory pile up.
Refinery products, which have highest weight in eight core industries, grew by substantial 7.4 per cent in February 2020, which was the highest growth in production in the past 19 months. In February 2019, the production had contracted by 0.8 per cent. Compared with a month ago level the growth rate in February 2020 was 5.5 per cent higher (1.9 per cent in January 2020). It can partly be ascribed to the increased production of BS VI fuel by the refiners to meet the upcoming demand ahead of the implementation of BS VI norms along with favourable base effect.
Fertilizers production grew by 2.9 per cent in February 2020, 40 bps higher than the 2.5 per cent growth in the corresponding month a year ago. The production had contracted by 0.1 per cent in the previous month. Robust sowing activities seen during rabi season have aided in the overall production.
Steel production has contracted for second successive month in February 2020. It fell by -0.4 per cent during the month compared with 4.9 per cent growth in February 2020. In January 2020, the growth in steel production has been revised downwards to -1.4 per cent as against 2.2 per cent as per earlier estimates. Subdued demand from the automobile sector and low exports has weighed on the steel demand.
The production of cement grew at a 11 month high by 8.6 per cent in January 2020, 60 bps higher than the 8 per cent growth in February 2019. It was also higher than 5.1 per cent growth a month ago. Pick-up in construction activities aided the production of cement. Electricity production was at a near 4 year high having grown at 11 per cent in February 2020. In February 2019, the growth was 1.2 per cent while in January 2020 it was at 3.2 per cent. The production has increased to meet the pickup in demand at the onset of summer.
CARE Ratings' view
Core sector production for March 2020 will be lower owing to lockdown and substantial reduction in the operations by most of the companies amidst the outbreak of COVID-19 in the country. For the full year FY20, core sector production may go down below 1 per cent. As a result, we are expecting IIP to grow by 1-2 per cent for FY20.
Courtesy: Core Sector Update -February 2020
Madan Sabnavis, Chief Economist
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Dr Rucha Ranadive, Economist
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Mradul Mishra, Media Contact
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