The eight core sector output fell sharply by 4.6 per cent in February 2021 compared with a high base of 6.4 per cent in the corresponding month last year. After five consecutive months of weak production in the core sector, there has been a notable fall in February 2021 with a broad-based decline across all 8 components of the core sector. The decline in February has been led by sharp contraction in the refinery products followed by decline in cement and coal production. There has been a marginal upward revision in the January 2021 provisional estimate to 0.9 per cent (0.2 per cent was the previous estimate for January 2021).

The cumulative index of eight core sector during April-February 2021 registered a de-growth of 8.3 per cent on account of the nationwide lockdown imposed in March, which adversely impacted the industrial production especially during the first half of this fiscal, compared with positive growth of 1.3 per cent in the corresponding period last year. All sectors except fertilisers contracted during this current fiscal so far. The impact of the COVID-19 pandemic has been immense on the production of the eight-core sector with double digit contraction registered in refinery, steel and cement.

Key highlights

• Coal production contracted for the second consecutive month and this is the highest fall in the last 6 months. The decline in coal production in February was 4.6 per cent on account of a high base effect (11.3 per cent in February 2020) and high level of coal inventories with both coal producers and power plants. Low power generation has also had a bearing on the fall of coal production.

• Crude oil production and natural gas production fell by 3.2 per cent and 1 per cent respectively in February 2021 primarily on account of fall in the output of fields belonging to national oil companies. This is the 21st consecutive month of decline in crude oil production while 12th consecutive month of fall for natural gas production.

• Refinery production declined sharply to a 4-month low of 10.9 per cent in February compared with 2.6 per cent in January 2021. The This year-on-year fall can be attributed to a high base effect (7.4 per cent in February 2020) coupled with sharp fall in crude throughput owing to lower number of days in February and fall in the demand for petro products. In addition, subtle transition toward public transport and rise in number of cases has led to the fall in crude throughput. Capacity utilisation in case of refinery companies was at 89 per cent, which has fallen after 5 consecutive months of increase.

• Fertilisers production to a 10-month low of 3.7 per cent in February primarily because the rabi season has come to an end. The negative growth in steel and cement shows that demand for infrastructure has not yet picked up. Steel output fell by 1.8 per cent in February 2021 as against a positive growth of 6.2 per cent in January 2021. The contraction in steel production has been on account of lower buoyancy shown by user industries. Cement output which fell by 5.5 per cent in February 2021 has witnessed 4 consecutive months of contraction. The contraction in cement production has been on account of a high base effect (7.8 per cent in February 2020), only gradual pick-up in construction activities and limited activity in the real-estate segment.

• Electricity production dipped marginally for the first time after 5 consecutive months of positive growth. The fall in electricity production by 0.2 per cent in February 2021 is indicative of low growth in demand from the commercial sector including manufacturing and services.

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A sharp decline in the core sector output in February means that IIP, which includes around 40 per cent of the core sector components, is likely to witness a fall in the range of 1.5 per cent to 3 per cent in February 2021. It would be interesting to see the movement from March onwards in case of core sector growth as March 2020 was the first month of sharp decline in all industrial activity and witnessed sharp double digit contraction till June 2020. A favourable base effect is likely to support core sector growth in the coming few months. A lockdown at national level for a week will be however counter pressured by localised lockdowns this time around.

Courtesy: CARE Ratings

ABOUT THE AUTHOR:

Sushant Hede, Associate Economist

Email: Sushant.hede@careratings.com | Tel: 91-22-6837 4348

Disclaimer: This report is prepared by CARE Ratings Limited. 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.