India needs to strengthen momentum in the key industrial sectors 

Output data for May from the eight core infrastructure sectors show broad industrial activity slowed under the onslaught of a heatwave that left homes, offices and factories countrywide using more power to run their fans and cooling systems. Only coal, to fuel the power plants, and electricity generation posted double-digit output growth, expanding by 10.2% and 12.8%, respectively, as per provisional data on the Index of Eight Core Industries released by the Ministry of Commerce and Industry on June 28. And production in crude oil, fertilizers and cement shrank from their year-earlier levels, while output expansions decelerated in the remaining three sectors of natural gas, refinery products and steel. The heatwave’s impact on economic activity in May was particularly prominent in India’s northern parts, as it forced afternoon breaks at construction sites and daily peak power demand at the Northern Regional Load Despatch Centre consistently hovered around or exceeded 75 gigawatts.

Demand for cement and steel weakened as construction activity was understandably curbed by the temperatures, with both the key building materials also posting sequential declines in output. The year-on-year contraction in fertilizers for a fifth straight month in May is a cause for concern as it signals persisting weakness in the rural hinterland’s mainstay agriculture sector. A smart uptick in May’s index number for the farm input, from the revised reading for April, however, offers a glimmer of hope.Official data for the core sector as well as the Index of Industrial Production, to which it contributes more than 40% weight, however, suffer from the infirmity of coming with a lag of more than a month. Meanwhile, the private sector, survey-based HSBC India Manufacturing Purchasing Managers’ Index (PMI) for June suggests that activity at factories rebounded last month from May’s heatwave-hit three-month low. June’s PMI reading of 58.3 was 0.8 percentage points higher than May’s 57.5, and, according to HSBC India, “comfortably above its long-run average”.

The survey also indicates that manufacturers stepped up output and buying to meet buoyant demand, and stepped up hiring to the fastest pace “seen in more than 19 years of data collection”. However, both the job creation and demand were also accompanied by an intensification of increases in staff expenses and material and transportation costs that led to manufacturing companies raising their selling charges by the greatest extent in more than two years. The inflationary trend, coupled with survey respondents’ overall confidence in future output sliding to a three-month low, signals the economy still faces speed bumps. Policymakers have a chance to use the upcoming Union Budget to make policy tweaks to help strengthen momentum in the key industrial sectors.

Source: The Hindu

 
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