Data on Key Industrial Sector

1. May’s output data from the eight core infrastructure sectors revealed a slowdown in broad industrial activity due to a heatwave that led to increased power usage by homes, offices, and factories across the nation.
2. The only sectors showing double-digit output growth were coal and electricity generation, which expanded by 10.2% and 12.8% respectively, according to the Index of Eight Core Industries released by the Ministry of Commerce and Industry on June 28.
3. Meanwhile, production in crude oil, fertilizers, and cement declined compared to the same period the previous year, while the rate of output growth slowed in natural gas, refinery products, and steel.
4. The northern regions of India felt the economic impact of the heatwave in May as it disrupted construction activity and led to peak power demand at the Northern Regional Load Despatch Centre hovering around or exceeding 75 gigawatts.
5. Demand for key building materials, cement, and steel, declined as construction activity reduced due to high temperatures, resulting in sequential declines in output.
6. A consecutive fifth-month contraction in fertilizers is an ongoing concern, reflecting the persistent weakness in the agricultural sector in rural hinterlands. However, the index number for farm input in May showed a slight uptick from April, offering some hope.
7. Notably, the data for the core sector and the Index of Industrial Production, which contribute over 40% weight, suffer from delayed release, with the lag being more than a month.
8. The HSBC India Manufacturing Purchasing Managers’ Index (PMI) report for June shows the activity at factories rebounded from the low experienced in May due to the heatwave, with the PMI reading of 58.3 being 0.8 percentage points higher than May’s 57.5.
9. The survey suggests manufacturers increased output, buying, and hiring to meet robust demand – the fastest pace seen in over 19 years.
10. Despite the job creation and demand, these were coupled with rising staff expenses and increased material and transportation costs, leading to manufacturing companies raising their selling charges – the steepest increment in over two years.
11. This inflationary trend, along with the survey respondents’ overall confidence in future output declining to a three-month low, indicates that the economy still faces challenges.
12. The upcoming Union Budget presents policymakers with an opportunity to make policy adjustments to boost momentum in the key industrial sectors.