March core sector output slumps 6.5% 

#GS2 #Governance  

Sharper contraction likely in IIP 

  • Output at India’s core sector contracted by 6.5% in March, reflecting the early impact of the COVID-19 pandemic and the subsequent nationwide lockdown. 
  • The index of eight core sector industries, which form 40% of the weight of items included in the broader Index of Industrial Production (IIP), reflected a contraction in key parts of the economy in March. 
  • The core sector data signalled a much sharper contraction in the wider IIP, especially in April, as several core sector industries were actually exempted from the lockdown. 

Steel declines 13% 

  • Leading the contraction at the core industries were a 13% decline in steel output, and a 7% fall in electricity generation.  
  • The two sectors account for almost 40% of the index. Cement production crashed 25%, while natural gas production slid 15%, the data showed. Fertiliser production also fell 12%, while crude oil production slipped 5.5%. 
  • Coal was the only core sector which saw some growth, with output up 4%. The largest component of the index — refinery production — also dipped by only 0.5%. 
  • Several of the core sector industries were given exemptions under the lockdown. Electricity and steel are continuous processes and have not been stopped.  
  • But movement of goods faced major restrictions, so it could be that they reduced production as much as possible to deal with reduced demand. 
  • Coal may dip for April, while cement production will fall sharply as all construction activity came to a halt. 

The wider IIP will see a much bigger hit, as non-essential industries were completely closed in April. The core sectors account for about 40% of the IIP, but I’d say about 45% of all industries will show zero production. 

 

A new low 
The year-on-year growth of the production volume 
of the eight core industries contracted 6.5% in March 
2020, a near eight-year-low 
8 
4 
-4 
April 2012 
-6.5% 
March 2020
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