The first signs of the macroeconomic disruption caused by Covid-19 in India are here.
The country’s core sector growth, or the output of eight key industries, contracted by 6.5% in March, showed data released yesterday (April 30) by the ministry of commerce and industry. Barring coal, all other sectors witnessed a sharp output contraction in the month.
The sharpest fall was in cement (-24.7%). Steel, natural gas, and fertilisers sectors, too, saw double-digit declines as weak demand, labour constraints, and shortage of raw material dented output amid the nationwide lockdown.
India’s 40-day nationwide lockdown to contain the spread of coronavirus began only on March 25, indicating the worst is yet to come.
“Despite some easing in industrial activities by the government, post-April 20, the production activities have remained muted with labour shortages and other issues. As a result, in April 2020 we may see a further contraction in eight core sectors and the industrial output,” said a CARE Ratings report released after the data was published.
These eight core sectors account for 40.27% of India’s index of industrial production (IIP), a measure of overall factory output, which is now certain to have contracted in March.
Existing problem made worse
Industrial output was crawling even before the onset of the lockdown. The core industries grew at a mere 0.6% in the financial year 2020, the lowest in eight years.
“Contraction in output in four industries, namely coal, crude oil, natural gas, and cement, and subdued growth in the remaining four has led to lower growth during the year,” observed CARE.
These emerging distress signals indicate that India’s gross domestic product (GDP) is getting trimmed.
On April 4, Crisil, the local arm of sovereign ratings agency Standard & Poor’s, revised India’s GDP growth for the financial year 2021 from 3.5% earlier to 1.8%. “Lockdowns are showing a disastrous impact on the economy and could lead to a permanent loss of GDP, unemployment, and poverty, despite relief packages,” it warned.