Core sector growth hits 13-month high of 18.1% in May

Growth in the output of eight core infrastructure sectors scaled a 13-month peak of 18.1% in May from a year earlier, compared with 9.3% in the previous month, partly aided by a favourable base due to the second Covid wave in this month last year.

Data released by the government on Thursday showed the core index grew at a decent pace of 8.1% in May from the pre-pandemic level (same month of 2019) as all the constituents, barring crude oil, showed improvements. However, sequentially, the month-on-month uptick in May was relatively modest (2.6%) across the eight infrastructure sectors.

Nevertheless, the decent performance of the core industries will brighten the prospects of the index of industrial production (IIP), which is estimated to record double-digit expansion in May (according to an Icra estimate, it could be as high as 16-19%). The core industries make up for 40.3% of the IIP. It also suggests an industrial recovery is gradually taking root.

The latest data showed seven out of eight sectors witnessed a sequential improvement in growth, while only coal saw a slowdown in the growth momentum despite remaining elevated.

The production of coal and crude oil jumped by 25.1% and 4.6%, respectively in May. The growth in the output of natural gas, steel, cement and electricity stood at 7%, 15%, 26.3% and 22% in May, against 6.4%, 5%, 9% and 6.1%, respectively in the previous month, the data showed. The growth in refinery products and fertilisers hit 16.7% and 22.8% in May, compared with 9.2% and 8.7% respectively, in April.

Icra chief economist Aditi Nayar said the 22% growth in electricity generation from 11.8% in April echoes the rise in the demand stemming from heat wave conditions in parts of northwest and central India, as well as some pickup from commercial and industrial establishments. With the normalising base, electricity demand has eased in the second half of June, from the highs seen in April-May.

“We expect the IIP to expand by 16-19% in May 2022, benefiting from the high growth in the core sector as well as various other high frequency indicators,” Nayar said.

Economists at India Ratings said the fact that the rebound in the economic activity was not derailed by the Russia-Ukraine conflict is a ‘silver lining’. The power generation, as of June 29, was up 14% from a year before and coal production also grew as much as 28% as of June 16. This means these two sectors will most like see double-digit growth in June as well.