Coal, electricity buoy core output in May

Output growth in India’s eight core infrastructure sectors eased to 6.3% in May, from April’s 6.7% pace, with a double-digit rise in coal and electricity production offsetting contractions in three sectors, including cement and fertilisers.

Sequentially, the Index of Core Industries (ICI) rose 3.7% from April’s levels.

Electricity generation rose year-on-year at a seven-month high pace of 12.8%, while coal production grew 10.2%, both likely triggered by higher demand amid the heatwave in most parts of the country through May.

Natural gas output rose 7.5% while steel production increased 7.6% in May. However, refinery products saw a mere 0.5% uptick, the slowest rise in four months.

Cement output contracted for the second successive month, dipping 0.8% in May following a 0.5% fall in April. However, in absolute terms, cement production levels were the lowest since November.

Fertilisers’ production dipped for the fifth straight month, with the 1.7% drop in May being the sharpest pace of decline in three months. Crude oil production also dropped 1.1% in May, snapping a four-month growth streak.

The Commerce and Industry Ministry revised April’s ICI, reflecting a 6.7% rise, higher than the 6.2% estimated earlier. The revision was driven by upgrades to electricity and steel output, which are now reckoned to have grown 10.2% and 8.8%, respectively, compared with 9.4% and 7.1% estimated earlier. However, cement output, earlier gauged to have risen 0.6%, is now said to have contracted 0.5%.

The eight core sectors constitute little over 40% of the Index of Industrial Production (IIP). Industrial output growth had slowed to a three-month low of 5% in April, and ICRA chief economist Aditi Nayar said she expects May’s IIP to rise in the range of 4% to 5%.

Base effects played some role in a few ICI segments such as cement, which had clocked a double-digit rise last May, said Bank of Baroda chief economist Madan Sabnavis, adding that a slowdown in government capex spends last month also may have affected cement demand.

“A combination of factors including the heatwave over parts of the country and the phased Parliamentary elections could have curtailed activity and execution in some sectors, even as the heatwave boosted demand for coal and electricity,” noted Ms. Nayar.