Core sector output shrinks by 6.5%

March performance is worst in current series

The output of India's eight core sectors contracted by a record 6.5 per cent in March, after 7.1 per cent growth in the previous month, as many factories shut down and production came to a virtual halt amid the coronavirus lockdown.

The latest broad-based decline meant that core sector output in 2019-20 dropped to just 0.6 per cent, down from the 4.4 per cent growth seen in the previous year.

“The core sector contraction in March 2020 represents the worst performance in the current series. With the lockdown in place throughout April 2020, which is expected to have severely curtailed production in many core sectors, the contraction in core output is likely to worsen to alarming levels," said Aditi Nayar, principal economist at ICRA.

The revised figures for February, released by the commerce and industry ministry on Thursday, pegged it at a 19-month high. Experts had warned last month that a steep drop would arrive soon. Now, they fear the hit to production will be larger than anticipated. For instance, the lockdown curtailed the demand for electricity by 24 per cent on a yearon-year (YOY) basis in April, according to the official data, she added.

In March, only the coal sector saw growth among the eight core sectors. Output rose by 4 per cent, as compared to the precious month's 10.3 per cent growth.

In the energy space, production of refinery products fell by 0.5 per cent, after rising by a sharp margin of 7.4 per cent in February.

Even as the sector has showed a volatile trend in FY20, senior officials had claimed that a solid recovery in production was underway as key refining units pushed out more. But the sudden drop in global demand, as the pandemic stifled economic activity everywhere, led to a contraction in the sector, experts said.

In tandem, crude oil production continued its downward spiral for the 18th straight month. However, production saw a smaller hit in March, when output reduced by 5.5 per cent after the 6.4 per cent fall in the previous month. Experts believe production is linked to oil prices and a higher global value tends to make production more remunerative. As prices crash to historic lows, the sector is now expected to see contraction in the near term.

Natural gas production also contracted for the 12th straight month, reducing by 15.2 per cent in March, after February's 9.6 per cent contraction. The overall electricity generation shrank by 7.2 per cent, down from February's 11 per cent. The beginning of the year saw growth in generation after heavy contraction for 5 months, as sluggishness in manufacturing was understood to have led to a steep fall in power demand.

The latest data, however, shows that the infrastructure segment saw the biggest hit.