About data and key industry sectors

India needs to boost momentum in key industrial sectors

Output data for May from eight major infrastructure sectors showed broad-based industrial activity slowed under the weight of a heat wave that caused homes, offices and factories across the country to use more energy to power fans and cooling systems. Only coal, which powers power plants, and electricity generation posted double-digit output growth, rising 10.2% and 12.8%, respectively, according to provisional data on an index of eight major industrial sectors released by the Ministry of Commerce and Industry on June 28. And output of crude oil, fertilizers and cement fell from a year earlier, while production expansion slowed in the other three sectors of natural gas, refined products and steel. The impact of the heat wave on economic activity in May was particularly evident in northern parts of India, as it forced afternoon shutdowns on construction sites and the daily peak demand for power at the Northern Regional Load Dispatch Center consistently hovered around or above 75 gigawatts.

Cement and steel demand weakened as construction activity was understandably constrained by temperatures, and both key building materials also saw sequential declines in production. The annual decline in fertilisers for the fifth straight month in May is a cause for concern as it signals continued weakness in the core farm sector in the rural hinterland. However, a reasonable rise in the May indicator for farm inputs compared to the revised April reading provides a glimmer of hope. However, official core sector data, as well as the industrial production indicator to which it contributes more than 40%, suffer from weakness that comes with a lag of more than a month. Meanwhile, the private sector, based on the HSBC India Manufacturing Purchasing Managers’ Index (PMI) for June, suggests that factory activity rebounded last month from a three-month low hit by the heatwave in May. The June PMI reading was 58.3, which was 0.8 percentage points higher than May’s reading of 57.5 and “significantly above its long-term average,” according to HSBC India.

The survey also found that manufacturers increased production and purchases to meet rising demand, and also boosted employment to the fastest pace “seen in more than 19 years of data.” However, both job creation and demand were accompanied by a surge in growth in personnel costs and in the cost of materials and transportation, leading to manufacturing firms raising their selling prices by the largest amount in more than two years. The inflationary trend, combined with survey respondents’ overall confidence in future production falling to a three-month low, signals that the economy is still facing headwinds. Policymakers have an opportunity to use the upcoming EU budget to make policy changes to help boost momentum in key industrial sectors.

Source: The Hindu