India's core sector growth moderates to 3.7% in January: Govt data

Growth in eight-industry, core sector output dipped to 3.7 per cent in January against 4.1 per cent in the previous month, showing a mild effect of Omicron-induced region-specific lockdowns.

Even then, expansion in the index of industrial production (IIP) may rise in January against 0.4 per cent growth in December due to the favourable base effect of the previous year. The core sector has a bit over 40 per cent weighting in the IIP. This means the industrial sector may have escaped any major impact of the third Covid wave, which was milder than the previous two.

“The industrial sector appears to have escaped relatively unscathed from the third wave, with a muted dip in the y-o-y growth of the core sector as well as the mild sequential decline in the daily average generation of GST e-way bills,” ICRA Chief Economist Aditi Nayar said.

As many as 68.8 million e-way bills were generated in January against 71.6 million in the previous month. The core sector grew 11.6 per cent in the first 10 months of the current fiscal year against a very low base of an 8.6 per cent contraction in the corresponding period of the previous year.

Only two of the eight industries — coal and steel — saw growth picking up in January against that in the previous month. While coal output grew by 8.2 per cent against 5.2 per cent, steel production rose 2.8 per cent against a contraction of 0.7 per cent over this period.

These two industries have around a 28 per cent weighting in the core sector or a bit over 11 per cent in the IIP.

Also, even as cement production grew at a lower pace of 13.6 per cent in January against 13.9 per cent in December, the numbers showed the construction sector was in full swing, particularly in infrastructure.

All the other five segments — crude oil, natural gas, refinery products, fertilisers, and electricity — recorded poor performance in January against that in December. Of these, fertiliser production contracted by 2 per cent in January against a growth rate of 3.5 per cent in the previous month.

“Fertiliser production is down, which can be attributed to the end of the season phenomenon,” Bank of Baroda Chief Economist Madan Sabnavis said.

The sowing season in rabi ended in January.

Crude oil production contracted 2.4 per cent in January, the pace which is the highest in six months. Production has been declining each month for at least a year now. Sabnavis attributed this to low investment by oil-generating companies, particularly ONGC.

Even then, why do economists think the IIP would perform better in January than in December, the month when its growth fell to a 10-month low of 0.4 per cent. This is because in January and February last year, the IIP had contracted.

“With an easing of the unfavourable base effect, we expect IIP growth to rise to 1 per cent in January 2022 from the initial estimate of 0.4 per cent for December 2021,” Nayar said.

It should be noted there is no one-to-one relation between core sector production and the IIP. For instance, core sector output growth rose to 4.1 per cent in December from 3.4 per cent in November, but IIP growth declined to 0.4 per cent from 1.34 per cent over this period. This is because the other 60 per cent of the IIP and the base effect also play an important part.

Perhaps because of this Sabnavis was more optimistic as he said: “IIP growth can be expected to be around 3 per cent, based on an uptick in consumer goods to an extent, along with the base effect.”