Low Base Pushes India's Eight Core Sectors Growth Up By 18.1 Per Cent In May, Past 9.3 Per Cent In April

Signalling a continuity in economic recovery, India’s eight core infrastructure sectors registered a strong 18.1 per cent year-on-year growth in May 2022 as against 16.4 per cent in May 2021, driven by expansion in the production of cement, coal, fertilizers and electricity industries last month, data of the Ministry of Commerce and Industry showed on Thursday (30 June).

The core sector growth was 9.3 per cent in April 2022. The combined and individual performance of production in eight key industries including coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity is measured by the Index of Eight Core Industries (ICI) and these items constitute 40.27 per cent of the weight of items included in the Index of Industrial Production (IIP).

“We expect the IIP to expand by 16-19 per cent in May 2022, benefitting from the high growth in the core sector as well as various other high frequency indicators,” says Aditi Nayar, Chief Economist of ICRA who finds a broad-based improvement in the disaggregated data of growth of these sectors.

The sectors benefitted from a low base with the exception of coal which continued to record a high growth. “In sequential terms, the month-on-month uptick was modest across the core sectors,” Nayar adds.

Riding on the low base of the second wave of Covid-19, coal production increased on a year-on-year basis by 25.1 per cent in May 2022. According to a Nomura analysis, coal imports have declined to 209 million ton in FY22 from 215 MT in FY21 and coal imports by the power sector declined sharply to 27 MT in FY22 from 45 MT in FY21 due to the increase in domestic coal production to 777 MT in FY22 from 716 MT in FY21.

Cement production saw highest growth of 26.3 per cent in May this year over the same month of 2021 as demand looks set to rise by mid-to-high single digits over the medium term after an estimated mid-teen rebound in the financial year ended March 2022 and buoyed by sustained GDP growth, the government’s thrust on infrastructure and affordable housing and a revival in corporate capex, says Fitch Ratings.

This will underpin growth across various construction end-markets.

The other accelerator in May core sector show is electricity generation which doubled to 22 per cent in May 2022 over May last year, reflecting the rise in the demand due to heat wave conditions in the country.

India’s power consumption rose 23 per cent yoy in May 22 at 136.05 billion unit, according to a Nomura report, as some pickup from commercial and industrial establishments also boosted electricity demand. With the normalising base, electricity demand has eased in the second half of June 2022, from the highs seen in April-May 2022.

Official figures also show production of fertilisers expanded by 22.8 per cent in May 2022 over the same month of 2021. This is important as India depends on imports to meet domestic demand of crop nutrients. Demand for fertilisers is expected to be high this year due to the forecast of a robust monsoon, which waters 60 per cent of the country’s cultivated area.

Compared to the robust output of these industries, crude oil production increased by a bare 4.6 per cent on a yoy basis in May 2022 while natural gas production was just a little better, growing by 7.0 per cent in May 2022 over May 2021.

Petroleum refinery production increased by 16.7 per cent in May 2022 over May 2021. Steel production increased by 15.0 per cent in May 2022 over May 2021.

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