Unfavourable base effect to blame; expected to improve next month.

Output of eight core infrastructure sectors contracted 4.6 per cent (year-on-year) in February with decline in production spread across all sectors, led by petroleum refinery products.

The drop in core sector output in February, owing partly to an unfavourable base effect, follows marginal increases in production posted in January 2021 and December 2020.

Cumulative output down

Cumulative output of the eight infrastructure sectors in the April-February 2020-21 period recorded a decline of 8.3 per cent (year-on-year), per figures released by the Commerce & Industry Ministry on Wednesday.

“While a high base effect of 6.4 per cent for February 2020 was expected to drag down the numbers for 2021, the fact that all sectors have gone negative is a disappointment,” said Madan Sabnavis, Chief Economist, CARE Ratings.

The unfavourable base effect particularly contributed to a deeper contraction in coal output and a sharp moderation in growth in electricity generation in February 2021 relative to the previous month, pointed out Aditi Nayar, Principal Economist, ICRA Ltd.

The economists expect core sector performance to be positively influenced in March by a favourable base-effect as the Covid-19 pandemic had started affecting core output in March 2020.

“Encouragingly, electricity demand has rebounded substantially, with a year-on-year expansion of 21.5 per cent up to March 29, 2021. This could partly be related to the higher-than-normal temperature levels in some parts of the country, a pick-up in the electricity requirement from the commercial and industrial segments, as well as the low base of March 2020,” said Nayar.

The eight core industries comprise 40.27 per cent of the weight of items included in the Index of Industrial Production (IIP).

IIP growth will continue to be in the negative territory in February and may range 1.5-3 per cent, per estimates made by the economists.

Petroleum refinery production (weight of 28.04 per cent) posted the steepest fall, declining by 10.9 per cent in February. The fall in output was sharper at 12.2 per cent in the April-February 2020-21 period.

Generation of electricity (weight of 19.85 per cent) declined marginally by 0.2 per cent in February. Its cumulative index declined by 2.5 per cent during April-February 2020-21.

Steel output falls

Steel output (weight of 17.92 per cent) fell by 1.8 per cent while cumulative fall for the sector in April-February 2020-21 was steeper at 12.4 per cent.

Production of coal (weight of 10.33 per cent) declined by 4.4 per cent with a lower 2.2 per cent fall posted in April-February 2020-21.

There was a decline of 3.2 per cent in production of crude oil (weight of 8.98 per cent) in February 2021. The cumulative fall in production in the April-February 2020-21 period was higher at 5.4 per cent.

Natural gas production (weight of 6.88 per cent) declined by 1 per cent in February, while its cumulative index fell by a sharp 9.9 per cent during April-February 2020-21.

A 3.7 per cent fall in fertiliser production (weight of 2.63 per cent) was registered in February 2021 but cumulative production posted an increase of 2.4 per cent in April-February 2020-21.

Cement production (weight of 5.37 per cent) declined by 5.5 per cent in February 2021 while total production of cement in the April-February 2020-21 period dropped by a sharper 15.5 per cent.