Core Sector output Shrinks 4.6% in Feb

Contraction across all 8 segments points to patchy recovery

India’s core sector output contracted 4.6% in February from a year ago, the worst performance in the past six months, underlining a patchy economic recovery that faces headwinds from a second COVID-19 wave.

The core sector index, which measure the output of eight infrastructure industries – coal, electricity, crude oil, natural gas, steel, cement, fertilizer and refinery products – had risen 0.9% in January and 0.2% in December.

“Notwithstanding an unfavorable base effect, each of the eight constituents recorded an unnerving year-on-year degrowth in February 2021, another reminder that the phase of rapid recovery seen until December 2020 is clearly behind us” said ICRA principal economist Aditi Nayar.

The Index has a 40.3% weight in the index of industrial production (IIP), suggesting industrial production may also contract in the month.

Based on available data, we expect the contraction in the IIP to deepen to 2-3% in February 2021 from 1.6% in January 2021″, Nayar Said.

In the first 11 months of the financial year, core sector output was down 8.3% from a year ago, showed the data released by ministry for commerce and industry on Wednesday.

Growth may rebound from next month due to the base effect – core sector output had declined sharply from March 2020 as COVID-19 took hold and the country headed into a lockdown.

India’s key industrial states- Maharashtra, Karnataka and Tamilnadu- are seeing a COVID-19 resurgence and steps to curb the spread there can dampen industrial growth.

All eight industry segments of the core sector saw a contraction in output in February.

Refinery products reported the sharpest 10.9% contraction followed by cement (-5.5%), coal (-4.4%), fertiliser (-3.7%), crude oil(-3.2%), steel(-1.8%), natural gas(-1.0%) and electricity (-0.2%).

For the first time after April, all eight sectors have seen a year-on-year contraction, signaling a very fragile economic recovery. said India ratings Chief economist DK Pant.

However from next month onwards we hope to see a sharp rebound purely on the back of a strong base effect.

Author: UINDO

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