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OMINOUS CONTRACTION: ON CORE SECTOR OUTPUT

Introduction

The provisional figures released by the Commerce Ministry show that production at all but one of the eight industries comprising the core sector shrank in March from a year earlier.

Details

  • This is the sharpest contraction in the index since the new series began in April 2012.
  • The output contracted by as much as 6.5% in a month when most economic activities ground to a halt only in the last seven days.
  • This reflects the underlying stress in the economy, most crucially on the demand side.
  • Coal, the only sector to post a positive figure in March as output expanded 4%, but even this is not reassuring.

Grim Future

  • With the construction sector hit hard by the lockdown and likely to face serious labour supply issues even after the economy gradually reopens, cement may see production shrink in the first month of the new fiscal year by an even greater extent than the 25% drop seen in March.
  • The mayhem in the oil market with global crude prices tumbling is also certain to undermine the industries in the energy sector.
  • Undoubtedly, April’s overall core output appears headed for an even sharper contraction.
  • The Centre may be left with little option but to massively lift public spending on infrastructure once the lockdown ease
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September 2022
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