Core sector clocks 6.8% growth rate in March

The output of eight infrastructure sectors grew at 6.8% in March—a 32-month high and this comes against the backdrop of a raging Covid-19 pandemic and slow vaccinations. The output of natural gas (12.3%), steel (23%), cement (32.5%), and electricity (21.6%) recorded robust growth and expanded in double digits. However, coal (-21.9%), crude oil (-3.1%), refinery products (-0.7%), and fertilizers (-5%) continued to contract. Overall, the core sector contracted 7% in 2020-21 against the 0.4% growth in the preceding year. March, April, and May growth numbers for core sector and industrial growth are expected to be high and misleading, as they come on the back of sharp declines registered last year. Madan Sabnavis, the chief economist at Care Ratings, said, "March was just the beginning of the lockdown, which pushed back economic activity after which there were sharper declines. Hence, the core sector growth of 6.8% in March must be interpreted with caution and this will be the theme in the next two months, too."

Aditi Nayar, chief economist at Icra Ltd said the pace of expansion was weaker than her forecast of a 10% expansion, with a surprisingly sharp contraction in coal, and milder de-growth in fertilizers, crude oil, and petroleum products. She said, "The low base of the lockdown would push up the expansion of the index of eight core industries to a sharp 50-70% in April 2021, with exceptionally high growth expected in cement and steel. However, they have observed a slackening in the sequential momentum in April 2021 in electricity demand, vehicle registrations, and generation of goods and services tax e-way bills, revealing the impact of the recent surge in Covid infections and localized restrictions. Based on the available data, it is projected that the Index of Industrial Production will record a sharp growth of 17.5-25% in March."

S&P informed that a drawn-out pandemic with daily cases setting new records will impede India's economic recovery. "This may prompt us to revise our base-case assumption of 11% growth over fiscal 2021/2022, particularly if the government is forced to re-impose broad containment measures."