InvestorQ : What does the sharp fall in the core sector output really mean for India?
Sam Eswaran made post

What does the sharp fall in the core sector output really mean for India?

swati Bakhda answered.
1 year ago

The core sector output or the infrastructure output as it is popularly called, was announced for the month of May 2020 on June 30. India’s core sector output for the month of May 2020 shrank by 23.4% which is hardly surprising considering that key metros had been under virtual shutdown till the end of May this year.

Overall core sector captures output trends across 8 key sectors from metals, cement, oil and electricity sub-groups. Needless to say, the output left a lot to be desired as the weak cash position, lack of demand and ambiguous labour policy did not yield desired results. Companies took a hit as labour that had migrated post COVID-19 did not want to return.

It must be said that the contraction in core sector in May was not as bad as the -37% reported in the month of April but -23% is still a bad number. Steel production tumbled and that was hardly surprising as most of the steel companies are facing a massive demand crunch. While cement did not fall as much as steel, it still shrank by 22%.

There were really no winners in the sectoral break-up. Core sector output assumes a lot of significance for the Indian economy as it accounts for nearly 42% of the IIP and can have a great influence on GDP growth. Core sector is a good lead indicator of overall economic and industrial growth. A lot would depend on government infrastructure spending.