Brisk Core Sector Output Growth in August 2021

Dr Debesh Roy, Chairman, InsPIRE

India’s eight core industries witnessed a brisk 11.6% growth in output in August 2021, compared with 9.9% in the previous month, and 9.3% in June 2021 (Chart 1), in spite of a less beneficial base effect. The sector also witnessed a 3.9% increase from the pre-Covid level of August 2019. However, the overall output was still lower by 0.3 per cent when compared to the February 2020 level.

During the period August 2020 to February 2021, the growth remained negative or very low, ranging between (-) 6.9% (August 2020) and 1.3% (January 2021), due to fall in consumption and investment demand on account of the impact of country-wide lockdown and slow opening up of the economic sectors. The growth rose sharply to 12.6% in March 2021 and  62.6% in April 2021, mainly due to low base effect.  The growth moderated to 16.4% in May 2021 (Chart 1).

The core sector growth in August 2021 was mainly driven by cement at 36.3% (compared to 21.7% in July and 7.5% in June 2021), natural gas at 20.6% (compared to 19% in July and 20.6% in June 2021), coal at 20.6% (compared to 18.8% in July and 7.4% in June 2021), electricity at 15.3% (compared to 11% in July and 8,2% in Junto e 2021), and refinery products at 9.1% (compared to 6.7% in July and 2.4% in June 2021) (Chart 2).  The steel sector, however,  witnessed a steady slide in growth from 24.9% in June 2021 to 9.4% in July 2021 and 5.1% in June 2021. But, fertilizers (-3.1%) and crude oil sectors (-2.3%) suffered decline in August 2021.

The high core sector output growth in August 2021 possibly reflects the beginning of a period of a more elevated and sustainable growth trajectory of the core industries, due to higher growth in the economic sectors and the thrust of the government on investment in infrastructure as per the National Infrastructure Pipeline. Weak monsoon rains in August positively impacted the output for coal, cement and electricity. Also, it influenced the increase in  mobility that resulted in the growth in petroleum refinery products. However, excess rainfall during September could have an adverse impact on the growth of output in these sectors. Therefore, according to ICRA, core sector output in September may not be sustained, and  could fall sharply to 4-6%.