What eight core sector data indicates

The output of eight core sectors in September 2021 was at 126.7, up by 4.4 per cent against the index for the corresponding period of last year in which core industries grew by 0.5 per cent, official data showed on Friday. In September last year, the output of core industries grew by 0.5 per cent as the country was reeling under lockdown and the demand was badly hit as the COVID-19 cases peaked in the same month last year and the symptomatic Covid-19 case load stood at around 10 lakh in late September. However, the core industries grew by 11.6 per cent in the previous month.

“The decline in growth of eight core sectors output in September in comparison to August is partly because of the base effect in the sense that last year it was marginally positive compared with last August when it was negative. More importantly the slowdown can be attributed to heavy rains this month which came in the way of infrastructure activity,” Madan Sabnavis, chief economist, Care Ratings told Business Today.

Aditi Nayar, chief economist, ICRA said that the sequential momentum expectedly recorded a broad-based slowdown with a MoM dip of 5 per cent in September 2021, reflecting the impact of heavy rains on certain core sectors. On an encouraging note, core output in September 2021 exceeded the pre-Covid level of September 2019 by 5 per cent, led by coal, natural gas, steel, cement and electricity.

He believed that core sector data in September is reflective of lower infra activity. He is hopeful of things getting better, “For October, ideally things should be better though there would be two constrains: coal shortage affecting power too and the extension of monsoon in most states which would have come in the way of infra projects,” he added.

Coal production in September 2021 increased by 8.1 per cent in comparison to the same month last year. Its cumulative index increased by 11.7 per cent during April to September, 2021-22 over corresponding period of the previous year. Similarly, in August 2021, the production of both coal and natural gas increased by 20.6 per cent over the same month of the previous year.

“With rainfall exceeding the long period average by 35% in September 2021, the YoY growth in coal output eased to 8.0% in September 2021 from 20.5 per cent in August 2021. We expect the coal availability to power plants to improve gradually during October 2021 with expected ramp-up in both coal production and dispatch levels, as well as a mild rise in imports. While the sequential momentum would improve, we expect the YoY core sector growth to remain subdued at 4-5 per cent in October 2021,” Nayar said.

Barring crude oil, the production of natural gas, fertiliser, electricity, cement, refinery products, and steel all increased in September 2021 in comparison to September 2020. In September 2021, Crude oil production declined by 1.7 per cent over September, 2020. On the other hand, the cement, steel, and natural gas production increased by 3.8 per cent, 10.7 per cent and 27.5 per cent respectively.

On the other hand, electricity generation increased by 0.3 per cent in September 2021 over September 2020. However, in August 2021, electricity generation rose by 15 per cent.

According to Sabnavis, the decline in electricity generation in September is definitely a concern as it is a reflection of overall business activity as power is used by residences which is steady and business. In September, services were still only partly open and hence we can expect some pick up in the coming months i.e. October onwards. This means that even manufacturing output was not buoyant in September. In October the coal crisis did surface which could still have an impact on power production.

The eight core industries comprise 40.27 per cent of the weight of items included in the Index of Industrial Production (IIP). The growth rate of these infrastructure industries during April-September 2021-22 stood at 16.6 per cent, as against a contraction of 14.5 per cent in the year-ago period.

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