Output soars on statistical base effect

The core sector data should not be taken at face value as they come over unusual circumstances in 2020. A better way would be to compare over March even though there are seasonal influences.

In April 2021, the eight core sectors registered a double-digit output growth of 56.1 per cent compared with 11.4 per cent growth in March 2021. The high growth in output can be attributed to a low base effect (-37.9 per cent in April 2020) as the nation-wide lockdown imposed last year brought production activities to a standstill resulting in huge output losses. The expansion in April has been led by an exponential growth in output of steel and cement. All sectors except crude oil have witnessed positive growth during the month.

However, the core sector output has been lower by 15.1 per cent in April 2021 over the March 2021 level with a broad-based contraction across all segments on a month-on-month basis. For March 2021, the core sector growth has been revised upwards from 6.8 (prov.) to 11.4 per cent (first revision) on account of improved coal production.

Key highlights

Coal production rose to a six-month high of 9.5 per cent in April 2021, higher than 0.3 per cent in March 2021 and -15.5 per cent in April 2020. However, coal production was lower sequentially in April 2021 compared with March 2021. The second wave of Covid-19 pandemic impacted production of coal as large number of employees tested positive for virus in state-run CIL.

Crude oil production witnessed a de-growth of 2.1 per cent in April 2021 compared with -6.4 per cent growth in the corresponding month last year. This fall can be ascribed to the less than planned contribution from workover wells, drilling wells and old wells by government owned oil companies. Production by private/joint venture companies was marginally lower on YoY basis, due to few wells being under maintenance, and some not producing due to possible casing damage, snapped/unscrewed sucker rod string and unavailability of effective demulsifier.

Natural gas production rose by 25 per cent in April 2021 as against a contraction of 19.9 per cent in April 2020 as output from fields operated by the private sector and joint ventures tripled and bulk of this came from eastern offshore fields. However, production by ONGC was flattish during the month.

Refinery production was in the positive territory for the first time in 13 successive months. Output in this segment grew by 30.9 per cent in April 2021 as against negative growth of 24.2 per cent in April 2020. Of these, major products that witnessed a rise in production during the month were LPG, Naptha, petrol, petcoke, bitumen, while products that saw a fall in production were superior kerosene oil and furnace oil.

Fertilisers production in April 2021 grew by 1.7 per cent over -4.5 per cent in the corresponding month last year. This lower output growth is reflective of the limited impact of coronavirus led disruptions on this segment in April 2020. Fertilizers production in April was 5.4 per cent lower when compared to March as the demand for fertilizers did not pick up because Kharif sowing doesn?? start in April.

Steel output saw exponential growth of 400 per cent in April 2021 compared with negative growth of 82.8 per cent in April 2020. However, sequentially steel production fell by 20.6 per cent. The rising coronavirus cases across the country, labour exodus and the diversion of liquid oxygen to hospitals for coronavirus patients impacted steel production during April 2021.

Cement production on a year-on-year basis increased by 548.8 per cent in April 2021 over -85.2 per cent April 2020. Monthly cement production declined by 15.2 per cent in April 2021 compared to March 2021 as the uptick seen in infrastructure and construction activities since H2-FY21 witnessed a slowdown due to recent spike in Covid-19 cases and subsequent imposition of localised restrictions from April 2021. Even the rural demand that had aided growth in demand last year seems to be affected by the second wave of Covid-19.

Electricity production increased by 38.7 per cent in April 2021, higher than 22.5 per cent in the previous month and -22.9 per cent in the corresponding month last year primarily on account of a low base effect as demand for electricity from the commercial sector was dampened by the disruption in economic activities in April last year. The growth in output witnessed in this segment during the month is the highest in the new series with the base year 2011-12.

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As expected the core output for April 2021 has been elevated on the back of a statistical base effect. The trend is likely to continue in the months ahead owing to output disruptions of May 2020 and slow pick-up in production following resumption of economic activities in June and July last year. The index of industrial production for April 2021 is likely to be high given the double-digit contraction of 57.3 per cent witnessed in the corresponding month last year.

Courtesy: CARE Ratings

ABOUT THE AUTHOR:

Akanksha Bhende, Associate Economist with CARE Ratings.

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.