The eight core sector industrial output has contracted by 23.4 per cent (prov.) in May 2020 as against 3.8 per cent growth in the corresponding period a year ago.

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. However, in the month of May 2020, eight core industries output improved in terms of a lower decline of -23.4 per cent compared with -37 per cent last year.

The eight core sector industrial output has contracted by 23.4 per cent (prov.) in May 2020 as against 3.8 per cent growth in the corresponding period a year ago.

However, the output decline in the month has been lower than that in April 2020 (37 per cent). The estimate for the month of April 2020 has been revised upwards from earlier 38.1 per cent de-growth to 37 per cent in the latest press release due to revision in cement and steel production.

During April-May 2020, the eight core industrial output grew contracted by 30 per cent compared with 4.5 per cent growth during the first two months of 2019-20 led by contraction in output across industries barring fertilizers (2 per cent growth).

Highlights:
Coal production declined by 14 per cent in May 2020 as against 1.7 per cent growth in May 2019 but has been lower than -15.5 per cent in April 2020. This is mainly due to poor demand owing to high coal stocks with the power stations.
Production of crude oil fell at faster pace by (-) 7.1 per cent compared with a decline by 6.9 per cent in the same month a year ago and -6.4 per cent a month ago. Low demand due to the Covid-19 pandemic, declining drawdowns from aging fields, closure of wells in Western offshore due to less off take by GAIL due to pandemic, restriction of movements for field operations in onshore fields amidst lockdown led to decline in production. A blow out incident at oil field in Assam on May 27, 2020 was weighed on production.
Natural gas output too has contracted by 16.8 per cent yoy, higher than the -0.1 per cent de-growth in May 2019 due to no gas off take by consumers in onshore due to Covid-19 lockdown.
Output of petroleum refinery products, which has higher weightage in eight core industries, contracted by 21.3 per cent compared with -1.5 per cent growth in the same month a year ago. The major reason for lower production of petroleum products is lower due to lower demand due to impact of COVID-19 lockdown.
Fertilizers production has grown by considerable 7.5 per cent in May 2020 as against a 1 per cent decline in May 2019 and -4.5 per cent in April 2020. Early onset of monsoon and pick up in kharif sowing has led to increase in production to meet improved demand.
Steel production registered de-growth by 48.4 per cent compared with 13.3 per cent growth in the corresponding month a year ago due to low demand from auto and construction sector. However, it showed signs of improvement than that in April 2020 backed by renewed domestic demand from easing in the lockdown restrictions and improved exports.
Cement production contracted by 22.2 per cent as against 2.8 per cent growth in May 2019. The decline in production was lower than that in April 2020. Although the construction activities resumed partially with ease in lockdown restriction, lower demand ahead of monsoon arrival weighed on production.
Electricity generation has decreased by 15.6 per cent compared with the 7.4 per cent growth in the same month a year ago, though it has improved marginally when compared with April 2020 aided by increase in demand for power by residents due to high temperatures and partial resumption of industrial activities after the ease in lockdown restrictions.

CARE Ratings’ view
In June 2020, core sector may show further signs of improvements as the country opened up some more economic activity including nonessential services, but will remain in negative zone. We may expect the industrial output growth based on IIP to remain in the negative bracket based on the eight core industries which has 40 per cent weightage in IIP.

Courtesy: Core Sector: May 2020

Footnote:
Authored by: Dr. Rucha Ranadive, Economist
Email: rucha.ranadive@careratings.com |
Tel: 91-22-68374406

Madan Sabnavis, Chief Economist
Email: madan.sabnavis@careratings.com |
Tel: 91-22-68374433

Disclaimer: This report is prepared by CARE Ratings. CARE Ratings has taken utmost care to ensure accuracy and objectivity while developing this report based on information available in public domain. However, neither the accuracy nor completeness of information contained in this report is guaranteed. CARE Ratings is not responsible for any errors or omissions in analysis/inferences/views or for results obtained from the use of information contained in this report and especially states that CARE Ratings has no financial liability whatsoever to the user of this report.