The growth during the month has been aided by increased output in the five out of eight industries ‘ coal, refineries, steel, cement and electricity.
In the month of January 2020, the output of eight core industries grew at a six-month high. At 2.2 per cent growth in the month, it was 70 bps higher than the 1.5 per cent growth in witnessed in the corresponding month a year ago and 10 bps higher than 2.1 per cent growth seen in the previous month. 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 five out of eight industries ‘ coal, refineries, steel, cement and electricity.
For December 2019, the year-on-year (YoY) growth has been revised upwards from 1.3 per cent earlier to 2.1 per cent as per latest data.
During the first 10 months of FY20’April 2019 to January 2020’the production in the eight core industries expanded at lacklustre 0.6 per cent, as against the 4.4 per cent growth seen in the corresponding period a year ago.
Industry-wise growth:
Coal production was at a 10 month high and it increased by 8 per cent in January 2020 compared with the 2 per cent growth seen in January 2019. The resumption of extraction activities post delayed monsoons this year has resulted in the increase in the production by the industry.
Crude oil production in January 2020 contracted for more than two years, successively for 26 months by 5.3 per cent, higher than de-growth by 4.3 per cent seen in January 2019. 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 by 9.1 per cent as against 6.2 per cent growth seen in January 2019 registering sustained contraction for the 10 months mainly on account of subdued prices and inventory pile up.
Refinery products, which have highest weight in eight core industries, grew by 1.9 per cent in January 2020, as against 2.6 per cent contraction seen in the comparable month last year. 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 April 2020 onwards.
Fertilizers production has seen a decline for the first time in the past eight months. The production of fertilizers decreased by 0.1 per cent in January 2020 compared with the 10.5 per cent growth seen in January 2019. High base effect has weighed on the overall growth numbers during the month despite of robust sowing activities seen during rabi season.
Steel production increased by 2.2 per cent in January 2020 lower than the 5.5 per cent growth witnessed in January 2019. The resumption of construction activities has supported the production in the industry.
The production of cement grew by 5 per cent in January 2020, lower than the 11 per cent growth in January 2019. Though the pick-up in construction activities aided the production of cement, high base effect the curtailed overall growth during the month.
Electricity production witnessed a trend reversal and grew by 2.8 per cent against the sustained contraction seen in the previous 5 months. It was also higher than the 0.8 per cent growth in January 2019.
CARE Ratings’ view
Based on the core sector growth, IIP is expected to grow by 2-3 per cent for January 2020. We are expecting IIP to grow by 2 per cent for FY20.
COURTESY:
CARE RATINGS "Core Sector Update"
January 2020
Disclaimer: This report is prepared by CARE Ratings Ltd. 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.
ABOUT THE AUTHORS: ‘Madan Sabnavis is Chief Economist. He can be contacted on: madan.sabnavis@careratings.com or 91-22-68374433 ‘ Dr Rucha Ranadive is Economist. She can be contacted on: rucha.ranadive@careratings.com or 91-22-68374406
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