Thermal effect: Coal and electricity sustain May production in the base sector

Output growth in eight of India’s main infrastructure sectors slowed to 6.3% in May, down from 6.7% in April, with double-digit growth in coal and power output offsetting declines in three sectors, including cement and fertilizers.

Subsequently, the Primary Industries Index (ICI) increased by 3.7% compared to April levels.

Electricity production rose year-on-year at a seven-month high of 12.8%, while coal production rose 10.2%, likely due to higher demand due to a heatwave that lasted into May in most parts of the country.

In May, natural gas production rose 7.5% and steel production rose 7.6%. However, refined products grew just 0.5%, the slowest growth in four months.

Cement production fell for a second straight month, falling 0.8% in May after falling 0.5% in April. In absolute terms, however, cement production was the lowest since November.

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

The Ministry of Trade and Industry revised its April ICI to reflect growth of 6.7%, up from the 6.2% previously estimated. The revision was due to improvements in power and steel production, which are now estimated to grow by 10.2% and 8.8%, respectively, compared with 9.4% and 7.1% previously estimated. However, cement production, previously estimated to grow by 0.6%, is now expected to contract by 0.5%.

Eight major sectors account for just over 40% of the Index of Industrial Production (IIP). Industrial production growth slowed to a three-month low of 5% in April, and ICRA Chief Economist Aditi Nayar said she expects IIP growth in the range of 4% to 5% in May.

Base effects played a role in several ICI segments such as cement, which recorded double-digit growth in May, said Madan Sabnavis, chief economist, Bank of Baroda, adding that the slowdown in government capex last month may also have had an impact on cement demand .

“A combination of factors, including a heatwave in parts of the country and a staggered general election, may have limited activity and execution in some sectors, even as the heatwave boosted demand for coal and electricity,” Ms. Nayar noted.