Core sector contracts by record 6.5% in Mar
India’s eight infrastructure sectors contracted by a record 6.5% in March after touching an 11-month high in February, hit by a nationwide lockdown to contain the spread of covid-19. Data released by the industry department on Thursday showed sectors including crude oil (-5.5%), natural gas (-15.2%), refinery products (-0.5%), fertilizers (-11.9%), steel (-13%), cement (-24.7%) and electricity (-7.2%) saw a contraction in output in the month, except coal which grew 4%.
“With the lockdown in place throughout April, which is expected to have severely curtailed production in many core sectors, the contraction in core sector output is likely to worsen to alarming levels in that month. For instance, the lockdown has curtailed the demand for electricity by a considerable 24% till April 27,” said Aditi Nayar, principal economist at Icra Ltd.
With the weak show in March, India’s core sector grew just 0.6% in FY20 lagging a 4.4% rise in FY19, which will have an adverse impact on factory output and subsequently on economic growth. The eight core industries comprise 40.27% of the weight of items included in the Index of Industrial Production (IIP).
Most forecasters have sharply cut growth projections for India both for FY20 and FY21. Swiss bank UBS on Wednesday cut GDP growth projection for the year ended March 31 to 4.1% from 4.5% earlier. It now expects India’s economy to contract 0.4% in the current fiscal from its earlier estimate of a 2.5% growth. UBS cautioned that if mobility curbs stay in place until June and economic activity returns to normal by end-August, then the economy may contract 3.1% in FY21.