Core sector growth slows to 4.3% in March


Coal Production Shrinks; Monthly Industrial Production Growth Expected to be 2.5% to 3.5%

Coal Production Shrinks; Monthly Industrial Production Growth Expected to be 2.5% to 3.5%

Manufacturing across India’s eight core sectors grew 4.3% in March, slightly down from the 6% growth recorded in February but still the second-highest growth rate over five months.

Fertilizer production rebounded strongly, growing 15.3% yoy after two months of decline, although this was at low levels as production fell 5% in March 2021. Cement production increased by 8.8%, natural gas by 7.6% and refined products by 6.2%, while steel production increased by 3.7%. Total output from the core sectors was up a whopping 12.6% a year ago.

Coal production shrank a marginal 0.1% in March, while crude oil production shrank 3.4%, the sharpest drop in ten months. Power generation expanded at the fastest pace in seven months at 4.9%. The eight core industries account for 40.27% of the Industrial Production Index (IIP).

“The first signs of the energy problem we have today could be seen in a 0.1% fall in coal production versus 0.3% growth in March 2021,” stressed Madan Sabnavis, chief economist at the Bank of Baroda.

Although the healthy 8.8% increase in cement production was due to the government’s infrastructure investments, Mr Sabnavis said steel production growth was still weak at 3.7%. The bank expects IIP growth to come in at around 2.5% to 3% in March as higher inflation and rising fuel prices would weigh on the pickup in consumption.

Rating agency ICRA expects IIP to rise by around 3% to 3.5% despite a slowdown in core manufacturing output growth and non-oil exports in March.

“Core sector growth slowed to a comfortable 4.3% in March 2022, in line with our forecast of 4.4%, with a slowdown in five of the eight constituents amid encouraging gains in fertiliser, cement and electricity,” ICRA Chief Economist Aditi Nayar noted, adding that all sectors except crude oil and fertilizer output were above pre-COVID levels.

“Looking forward, the recovery in economic activity would have boosted the core sector. However, the overall outlook has been dampened by rising commodity prices in international markets, which could squeeze profit margins for domestic producers and limit private sector investment,” said Rajani Sinha, chief economist at CARE Ratings.

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