Core sector shrinks for sixth straight month in August, pace of contraction picks up

NEW DELHI: India’s infrastructure sector shrank for the sixth straight month in August with the pace of contraction picking up, indicating that there may be intermittent setbacks before the economy fully recovers from the impact of the ongoing Covid-19 crisis.

The output of eight core infrastructure sectors dropped 8.5% in August compared to 8% contraction in July, data released on Wednesday showed. The eight industries in the index- coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity- together have a 40% weight in the Index of Industrial Production (IIP). The production of eight core sectors had declined 0.2% in August 2019.

Except coal and fertilisers, all other sectors witnessed a decline in output.

“Its cumulative growth during April to August during 2020-21 is -17.8%,” commerce and industry ministry said in a release.

The government revised downward the shrinkage in the core sector in July from 9.6% earlier and in May output to 21.4% from 22% earlier.

“The sequential worsening in the core sector’s performance in August was led by the deeper de-growth in refinery products, crude oil, electricity and cement, even as coal recorded a turnaround to a growth in that month, the pace of expansion of fertilisers improved, and the contraction in natural gas and steel eased relative to July,” said Aditi Nayar, principal economist at ICRA.

Fertiliser production grew 7.3%, faster than 6.9% in July and coal output rose 3.6% after four months of contraction benefitting from a mild improvement in the offtake levels as well as the favourable base effect

The pace of contraction slowed in natural gas and steel and electricity.

Cement and steel displayed contrasting trends in August with heavy rains arresting construction activity, even as inventory restocking in the auto sector boosted steel demand. Steel output shrank 6.3% and cement production was down 14.6%.

“Based on these mixed trends, we expect the contraction in the IIP to ease modestly to 6-8% in August 2020, from the initial 10.4% in July,” Nayar said.

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