The index of core sector production, comprising eight critical sectors, showed a year-on-year growth of 21.2 per cent during the April-July period of FY22. This was largely due to a “low-base” effect.
According to the latest statistics released by the Office of the Economic Adviser, the index of production of eight core industries grew by 21.2 per cent during the first four months of FY22. The eight sectors included in the index are coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity.
Low base effect
The growth appears to be high as it is compared against an abnormally low base. The core sector index had declined by 19.8 per cent year-on-year during the April-July period of FY21, owing to pandemic-induced lockdown.
This high growth of 21.2 per cent seen in FY22 can therefore be interpreted as more of a recovery rather than “growth” per se. Roughly, average production during the April-July period of FY22 was more or less at par with that in the whole of FY20. One can consider FY20 to be a pre-pandemic year, except for the last two weeks of March 2020.
Individual performance
Of the eight constituent sectors, the highest growth in the April-July period of FY22 was seen in the case of steel, followed by cement and natural gas. Steel production was up 59.4 per cent while cement and natural gas evinced growth rates of 45.6 per cent and 21 per cent, respectively. Once again, these rates are not suggestive of real growth.
Also read: Core Sector Shows Lower Decline In May 2020
Performance in July 2021
In July 2021 alone, the core sector index was up 9.4 per cent, year-on-year. In July 2020, the index had contracted by 7.6 per cent. In July 2021, all the eight constituents, with the exception of crude oil, showed year-on-year growth. Crude oil production in July 2021 was down 3.2 per cent, which was over and above a 4.9 per cent year-on-year decline seen in July last year.
Overall industry
These eight core sector industries account for 40.27 per cent of the weight of the overall Index of Industrial Production (IIP). As such, the core sector index is treated as a fair proxy for industrial production performance. Going by the standard practice, the IIP for July 2021 will be released by around September 11, 2021. The core sector index therefore is a forerunner of industrial production, with a lead time of around two weeks.
Short of expectations
Commenting on the core sector performance, Comments by Aditi Nayar, Chief Economist, ICRA, said, “The core sector growth barely budged to 9.4 per cent in July 2021 from 9.3 per cent in June 2021, with an unfavourable base absorbing the positivity engendered by the further lifting of restrictions on economic activity and mobility. On a disaggregated basis, half the sectors recorded an improved YoY growth in July 2021 (coal, electricity, refinery, cement), even as crude oil continued to contract. The expansion in the core sector’s performance fell short of our expectations (11.5 per cent), led by steel.”
(Featured photograph for illustration only)
