Core industries’ output dips to 20-month low of 0.1% in October

Due to a high base effect and some infrastructure slowdown, India’s primary sector grew to a 20-month low of 0.1 percent in October 2022, well below the 8.7 percent output growth recorded in October last year.

In September, the eight primary industries posted growth of 7.8 percent, back on track after a two-month decline. Only two sectors – crude oil and natural gas – recorded contraction in production during that month.

For the month under review, four of the eight primary industries — crude oil (-2.2 percent), natural gas (-4.2 percent); Refinery products (-3.1 percent); Cement (-4.3%) – remained in contraction territory. On the other hand, output growth was recorded in coal (3.6 percent); fertilizers (5.4 percent); steel (4 percent); and the electricity sector (0.4 percent) during the month.

Meanwhile, the Ministry of Commerce and Industry said that the cumulative growth during the period from April to October 2022 amounted to 8.2 percent, compared to 15.6 percent in the same period last year.

The final growth rate of the eight primary industries index for July 2022 was revised to 4.8 percent from 4.5 percent earlier. The eight primary industries make up 40.27 percent of the weight of the items included in the Industrial Production (IIP) index.

High base effect

While this is a sign of weaker activity, said Madan Sabnavis, chief economist at Bank of Baroda, the higher fundamental impact also had a role to play as growth was 8.7 per cent last year. Hence, given that growth last year was moderate from November onwards, we may expect better performance from the core sector. Given a weight of about 40 percent in international investment, we can expect growth in industrial production to be also low at 2-3 percent (provided that consumer goods show a rebound).

Overall, the performance was normal and does not point to a strong recovery in the coming months although the number will certainly improve, according to Sabnavis. The cumulative growth of 8.2 percent does not reflect the strength of the primary sector and can be interpreted as more stable. The prospects for the future will be driven by how infrastructure activity picks up.

November forecast

“While crude oil and natural gas production have declined for five and four months respectively, output in the refinery products and cement sectors contracted for the first time after an 18-month gap,” said Sunil Kumar Sinha, Chief Economist, India Ratings, and Paras Jasrai, Analyst. and 20 months in a row.”

The wave of unseasonal rains in October may have affected the cement and electricity sectors. Even momentum (seasonally adjusted growth month by month) turned negative as primary sector output in October came in 2.2 percent lower than in September. They added that this points to the fragility of the ongoing recovery.

Poor year-on-year growth means industrial output growth will also be lacklustre and could be less than 3 percent in October (where the core sector in international investment weighs 40.2 percent), according to India Ratings.

With continued support from the countries and the Centre, production in the steel and cement sectors is expected to perform well in the coming months. Altogether, Ind-Ra expects the core sector to grow by about 7 percent year-on-year in November.”