Core sector output at 13-month high in May at 18.1% on capex push

The data shows broad-based improvement in core sector growth benefitting from a low base, with the exception of coal

The output of the eight infrastructure sectors in May grew the highest in 13 months at 18.1 per cent on the back of a capex push by the Centre.

The data released by the industry department showed broad-based improvement in core sector growth benefitting from a low base, with the exception of coal (25.1 per cent), which continued to record a high double-digit growth for the second consecutive month. The other sectors that witnessed high double-digit growth were cement (26.3 per cent), fertilisers (22.8 per cent), electricity (22 per cent), petroleum & refinery products (16.7 per cent) and steel (15 per cent).

“Robust growth in the cement and steel sector indicates pick up in the construction sector, which is the second-largest employment provider after agriculture. The support mainly came from the government as the capex by the Union government grew by a strong 70.1 per cent in April-May 2022,” said Sunil Kumar Sinha, principal economist, India Ratings.  

According to the data released by the Controller General of Accounts, the Union government has exhausted 14.3 per cent of its Rs 7.5-trillion capital expenditure budget for FY23 in the first two months (April-May) of the fiscal year.

Even crude oil output witnessed a positive growth of 4.6 per cent after a gap of 53 months. “Positive crude oil production is good news at a time when the country is facing headwinds due to elevated global crude oil price and its related ramifications on the economy,” Sinha added.

“We expect the IIP (index of industrial production) to expand by 16-19 per cent in May, benefitting from the high growth in the core sector, as well as various other high-frequency indicators,” Aditi Nayar, chief economist at ICRA Ratings said.

Sinha said if the core sector output momentum was sustained, it would be a big positive for the economic recovery. “As the rebound in economic activity despite the Russia-Ukraine conflict did not get derailed, it is a silver lining,” he added.

Many professional forecasters have in recent months pared down their growth forecasts for India. While the Reserve Bank of India (RBI) has retained its earlier growth projection of 7.2 per cent for FY23, the Organization for Economic Cooperation and Development (OECD) has slashed India’s FY23 growth forecast to 6.9 per cent from 8.1 per cent estimated earlier, holding that the country had been adversely affected by Russia’s invasion of Ukraine. While Fitch Ratings upgraded India’s sovereign rating outlook to stable from negative last month, it cut the growth estimate to 7.8 per cent for FY23 from 8.5 per cent estimated earlier, observing that inflationary impacts of the global commodity price shock were dampening some of the positive growth momentum.

The RBI last month increased policy rates by 50 basis points to 4.9 per cent, the second hike in just over a month, to curb rising inflationary expectations. Many commercial banks have followed the rate action by increasing lending rates, which is expected to hurt the fledgling economic growth momentum.