Why Has Infrastructure Output Growth Hit A 9-Month Low?

Covid wounds to India's economy are yet to heal. Recently published core sector data shows that reduced electricity demand has slowed infrastructure output growth to a nine-month low, in a clear sign that economic activities are yet to pick consistent pace.

The country’s infrastructure output growth in November slowed to 3.1 per cent year-on-year, to hit lowest level in nine months, on the back of reduced growth in electricity and steel output, from upwardly revised 8.4 per cent in the previous month, government data showed on Friday.

Except crude oil and cement sector, output levels of all the infrastructure industries were higher than the output levels recorded in November 2020. The cement sector despite a low base recorded a contraction of 3.2 per cent in November 2021.

Core sector growth deflated to a lower than expected 3.1 per cent in November 2021 from the revised 8.4 per cent in October 2021, adding further evidence that the momentum slackened after the festive season amidst supply disruptions in parts of Southern India related to heavy rainfall, noted Aditya Nair, Chief Economist at ICRA.

"The slowdown was pervasive across six of the eight core sectors, with cement output slipping into a year-on-year (YoY) contraction. Moreover, the YoY growth of only fertilizer output recorded a rise in November 2021 relative to the previous month, as rabi sowing progressed. In month-on-month (MoM) terms, all the core sectors except coal and petroleum refinery products displayed a moderation, amidst the holidays in the festive period as well as the rainfall-induced disruptions in Southern India. The sharpest MoM decline was seen in cement, at a massive 21.1 per cent, whereas steel output declined by a relatievly muted 5 per cent," Nair said in a statement.

Commenting on Core sector data India Ratings and Research said that broad-based recovery is still some distance away.

"India Ratings and Research therefore believes that a broad-based recovery is still some distance away and the spread of Omicron variant of COVID 19 is likely to increase the uncertainty even further . Against this backdrop the core sector output is expected to remain muted and close to mid-single digit in December 2021," India Ratings said.