Core sector’s declining growth levels bound to impact IIP

The YoY core sector growth has halved to a five-month low at 3.6 per cent in March from 7.2 per cent in February. This is bound to have a bearing on Index of Industrial Production (IIP) numbers, which are awaited for the month gone by. Icra expects the IIP YoY growth to dip to 3-4 per cent in March. The core sector includes coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity. To be precise, it comprises 40.27 per cent of the weight of items included in the IIP. The economy’s core sectors are the primary or important industries. Moreover, its growth was fairly broad-based, with only coal and crude oil displaying a sequential improvement. The output of some of the sectors, like electricity and cement, has apparently been dampened by unseasonal rains. They displayed a YoY contraction in March along with crude oil. At the same time, coal, fertilisers and steel displayed a healthy expansion in excess of eight per cent in the same month, which is an encouraging sign, when taken under any yardstick. Dampened by a high base and heavy rainfall, the YoY performance of most of the available high frequency indicators weakened in March, relative to February, similar to the trend in the core sector.

Talking of oil separately, which comprises an integral part of the core sector, the sector was set for a sixth-month loss on deteriorating demand outlook. Production of coal, fertilizers, steel, natural gas and refinery products increased in March over the corresponding month of last year. The cumulative growth rate of ICI during 2022-23 reported 7.6 per cent (provisional) as compared to the corresponding period of last year. On the other hand, production of coal registered the highest growth of 12.2 per cent among the eight sectors, followed by fertilizer, which grew at 9.7 per cent, while production of natural gas, petroleum refinery and steel increased by 2.8 per cent, 1.5 per cent and 8.8 per cent, respectively. However, production of crude oil and cement declined by 2.8 per cent and 0.8 per cent, respectively. The electricity generation also witnessed a decline of 1.8 per cent in March over the previous year’s figure.

The final growth rate of index of eight core industries for December is revised to 8.3 per cent from its provisional level of 7.4 per cent. The eight core industries comprise 40.27 percent of the weight of items included in the IIP. In March, growth in natural gas production was down to 2.8 per cent, the lowest in three months, while refinery products grew at a four-month low pace of 1.5 per cent. ICI measures included the combined and individual production levels of the eight core industries.