The eight infrastructure industries included in the index — coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity–have a near 40% weight in the index of industrial production (IIP). This suggests industrial production may swing into the growth zone in September. “With the shrinking of the contraction of the core sector output, and the growth displayed by both auto production and non-oil exports, IIP may well be able to eke out a small growth in September 2020,” said Aditi Nayar, principal economist, ICRA.
During April-September, the core sector contracted 14.9%. Core sector output shrank for the seventh month in a row in September. The June number has been revised to 12.4% contraction from 12.9% shrinkage estimated earlier.
Consistent with High-frequency Indicators
The production of eight core sectors had declined 5.1% in September 2019.
Coal (21.2%), steel (0.9%) and electricity (3.7%) reported positive growth while the other five–crude oil (-6%), natural gas (-10.6%), refinery products (-9.5%), fertilisers (-0.3%) and cement (-3.5%)–were all in the red and in some cases even slipped from August levels. The recovery in the core sector is consistent with other high-frequency indicators such as goods and services tax collection and mobility among others that showed improving economic activity.
The sharp decline in coronavirus cases from the September peak has also raised hopes of a faster recovery after the economy contracted at an unprecedented 23.9% in the June quarter. Manufacturing PMI in September rose to its highest level in over eight-and-half years to 56.8 while exports grew 5.99% to $27.58 billion in September from the year earlier, after contracting for six months.
“IIP growth for this month may be expected between -2-5%,” said Madan Sabnavis, chief economist at CARE Ratings.