Lockdown effect: Core sector output crashes record 38.1% in April

The infrastructure segment experienced the biggest production shocks
The output of India's eight core sectors shrank by a record 38.1 per cent in April after a nine per cent contraction in March, as factories remained shut down nationwide and production came to a virtual halt amid the coronavirus lockdown.

Updated figures released by the Commerce and Industry Ministry on Friday showed core sector output in 2019-20 dropped to a marginal 0.4 per cent as broad-based decline gripped most sectors due to economic slowdown and later the lockdown. In the previous year, growth at stood at 4.4 per cent.

The core sector contraction in April represented the worst performance in the current series, but experts say the fall was expected and would slowly give way to lower rates of contraction in coming months. However, they fear the hit to production in the medium term will be larger than anticipated earlier. Core sector growth had scaled a 19-month high in February, before crashing in March.

"As expected, the core sector data reported a contraction in line with our forecast. While the lockdown contributed to a broad-based contraction across all the eight core sectors, it had a differential impact on the extent to which activity was curtailed in the various constituents," said Aditi Nayar, Principal Economist at Icra.
The infrastructure segment experienced the biggest production shocks. Steel production tumbled by a massive 83.9 per cent after March's 24 per cent fall. On the other hand, cement production shrank by an equally large margin of 86 per cent, following a 25 per cent fall in March. Both sectors have been in the grips of volatility even before the lockdown but strict social distancing norms have meant that construction activities have been suspended across the country.

While it was the sole sector experiencing growth (4 per cent) in March, coal output reduced by 15.5 per cent in April. Overall, the fact that labour was in transit camps meant activity in mining got affected, said Madan Sabnavis, Chief Economist at CARE Ratings. 

By extension, electricity generation fell 22.8 per cent over the latest month. Electricity generation had already contracted by 8.2 per cent in March. The beginning of the year had seen 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 pace of contraction in electricity demand has narrowed to 14.9 per cent on a Year-on-Year basis in the ongoing month (till May 27, 2020) from the considerable 24 per cent in the previous month, according to provisional data released by Power System Operation Corporation, said Nayar. This suggests that the graded relaxation in the lockdown in the ongoing month has allowed some resumption in economic activity leading to a pickup in electricity demand, she added.

Crude shock

Elsewhere in the energy space, crude oil production continued its downward spiral for the 19th straight month. However, production saw a relatively small hit in April, contracting 6.4 per cent. Experts believe production is linked to oil prices and a higher global value tends to make production more remunerative. As global prices crashed to historic lows in April, lesser domestic production took place. Given the latest price movements, they say the sector is now sure to see contraction in the near term. Natural gas production also contracted for the 13th straight month, reducing by 19.9 per cent in April, after March's 15.1 per cent contraction. 

 

Production of refinery products, a key export item, fell by a major 24.2 per cent. Contraction jumped from just 0.5 per cent in March. The sector had remained volatile throughout FY20, but senior officials had claimed that a solid recovery in production was underway as key refining units pushed out more. The sudden drop in global demand, as the pandemic stifled economic activity everywhere, led to a contraction in the sector, experts said.

Finally, fertiliser output reduced by 4.5 per cent, after reducing 11.9 per cent in March. This was the only instance of a slower fall than March as farmers picked up sowing for the next crop.

Experts predict overall industrial production will continue to fall in April by a margin of 75-80 per cent in industrial output in April 2020. According to data from the Index of Industrial Production, a collapse in manufacturing sector had led to industrial output falling by 16.7 per cent in March, when lockdown had been in force for just five days.



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