Output in the eight core industries suffered an overall contraction for a third straight month in May, shrinking 23.4%, as the pandemic-induced lockdown kept large parts of the economy shuttered, the Commerce Ministry’s provisional figures show. Of the eight, all but one posted declines in production compared with a year earlier, with six sectors witnessing double-digit drops. Steel and cement were the worst hit, slumping 48.4% and 22.2%, respectively, as construction activity and infrastructure projects remained mostly stalled. Refinery products, with the largest weight in the index contributing 28%, contracted 21.3% as the curbs on vehicular movement stymied demand for automobile fuels. And crude oil and natural gas continued their slide adding to the problems dogging India’s hydrocarbon exploration and production industry. Coal production also fell for a second straight month, declining 14%, as the lack of demand for electricity from the nation’s factories depressed power production as well as the need for the key thermal plant fuel. Output of electricity fell 15.6%, a slight improvement from April’s 23% slump, aided by the partial easing of restrictions and peak summer consumption by households. The only silver lining came from the fertilizer industry, as production rose 7.5% reversing the slump seen in the preceding two months and signalling robust activity in the agricultural sector at the start of the kharif season. The Finance Ministry had on June 23 cited a near doubling in fertilizer sales in May as indicative of “early green shoots of economic revival”.
A promising and early start to this year’s monsoon bodes well for the crucial farm income-dependent rural economy. The above average quantity and improved spatial distribution of rainfall in June have spurred a sharp jump in kharif sowing, with the area sown as on June 26 more than doubling compared with a year earlier to 315.6 lakh hectares. With the pandemic and the lockdown having sent lakhs of people back to their rural homes from jobs in the cities, a strong uptick in economic activity across the hinterland is significant. Still, much will depend on the monsoon staying its course. Also, there is a danger to the farm sector, especially in western, central and northern India this year from locust swarms. The Food and Agriculture Organization had in its June 27 update warned that India would need to remain on high alert through July for the possible arrival of swarms from northern Africa. The latest PMI data from researcher IHS Markit also paints a less than promising outlook for manufacturing, which contracted again in June albeit at a softer pace. The June survey showed sharp reductions in output, new orders and employment. Policymakers must not only contain COVID-19’s tearaway spread but also simultaneously keep economic momentum from sliding further.
