Core industries contract fastest in 8 years, in March 2020

In FY20, production in the eight core industries expanded at a lacklustre 0.6 per cent, which is the lowest growth seen in the past 8 years. Contraction in output in four industries namely coal, crude oil, natural gas and cement and subdued growth in remaining four industries has led to lower growth during the year.

Coal production contracted for the first time in the past 8 years. Year on year, the production of coal declined by 0.5 per cent as against the 7.4 per cent growth seen a year ago. Coal production grew by 4 per cent lower than the 9.1 per cent growth seen in March 2019. Reduction in demand for power, high inventories lying with power generation companies and labour shortages faced by companies, impacted the output.

In March 2020, Crude oil production contracted successively for more than 2 years (28 months) by 5.5 per cent due to the decline in fields operated by private players along with decline in crude oil prices. Crude oil production contracted for the past 8 years in a row. However, at -5.9 per cent, it was the highest decline in crude oil production compared with the previous 8 years.

The production of natural gas too has declined in the past one year and in March it further declined at a double digit pace of 15.2 per cent. It can be attributed to decline in consumer demand due to the nationwide lockdown, which shut transport and industrial activity.

Refinery products, which have the highest weight in eight core industries, indicated de-growth by -0.5 per cent for the first time in the past 6 months. Fall in production of ATF, Diesel and Bitumen has weighed on the overall production of refinery products causing the sector to fall by 0.5 per cent.

Fertiliser production declined by considerable -11.9 per cent in March 2020 as against 2.9 per cent growth a year ago. Weak demand, shortage in raw material availability and labour constraints owing to the COVID-19 pandemic impacted fertiliser production growth during this month.

Steel production has declined at the fastest pace since inception of 2011-12 series. In March 2020, it declined by 13 per cent as against 6.3 per cent growth in the same month a year ago. Steel production in March 2020 was impacted by the seven days nationwide lockdown during the month, which led to halt in production by most user industries including automobile and construction.

The production of cement too contracted at the fastest rate in the past 8 years. It contracted by -24.7 per cent in March 2020 as against 7.8 per cent in March 2019, due to high base effect coupled with the halt in production. The halt was due to the nationwide government imposed lockdown. After registering considerable double digit growth of 13.3 per cent in FY19, the production of cement declined by 0.8 per cent in FY20. This was also due to weakness in housing demand, prolonged rains in many parts of the country and decline in demand from the infrastructure segment.