Workers assemble Royal Enfield motorcycles inside a factory in Tamil Nadu. Photo: AFP / Arun Sankar

India’s core sectors, comprising steel, cement, coal and electricity among others, recorded a contraction for the ninth successive month, indicating an industrial recovery in Asia’s third-largest economy may take longer than was generally expected.

The index of eight core sectors declined by 2.6% in November compared with the same month in 2019. The growth contraction was 0.9% in October, 0.1% in September and 6.9% in August.

Growth from April to November 2020 over the same period in 2019 declined 11.4%, government data showed.

Growth of the core sectors makes up 40.3% of the Index of Industrial Production (IIP), which indicates industrial growth. The IIP contracted for six months since March and barely edged into positive territory with 0.5% growth in September, and grew 3.6% in October, benefiting from the year-ago base effect.

A key reason the IIP showed a pickup during September and November was the annual festival buying by households and a quick rise in sales of two-wheelers, cars and consumer durables and white goods.

The IIP for November will be announced on January 12. Economists and officials are keenly awaiting November’s IIP data to see if the pickup in September and October was a temporary spurt or steady.

Industry contributes about 29% of India’s GDP and is a major source of revenue for the government, while also offering employment to millions of youth. The drastic lockdown from March 2020 dealt a severe blow to the sector, rendering millions jobless and leaving the government coffers dry of revenue.

India’s economy contracted 23.9% in the first quarter ended June 30 and contracted by 7.5% in the quarter ended September 30. The central bank has forecast gross domestic product (GDP) would contract by 7.5% in the full year to March 31, 2021.

“It shows that the industrial recovery continues to be uneven and fragile,” said Sunil Kumar Sinha, principal economist at India Ratings and Research.

The index of eight core industries comprises steel, cement, fertilizer, coal, crude oil, refinery products, natural gas and electricity. Of the eight, coal, electricity and fertilizer posted growth of 2.9%, 2.2% and 1.6% respectively in November 2020 over the year-ago month.

Among those that did not grow but actually contracted include natural gas, cement, crude oil, refineries and steel.

“The decline in the growth in steel and cement to the negative zone blunts to a large extent the hopes of a revival in the manufacturing and infra spaces,” said Madan Sabnavis, chief economist at CARE Ratings.

“Fertilizers is the only other sector to register positive growth of 1.6% which, however, is lower than that in October. With the sowing season now fully over, this industry will remain subdued and output will be linked more to re-stocking activity.”

Still, even as industrial growth stutters, the stock markets were surging to record highs almost every other day for the past few months. The BSE Sensitive Index on Friday rose 117 points, or 0.255%, to 47,868.98 points, an all-time high.

A key factor in the rising prices of equities is the surge of cheap overseas money into local stocks. Foreign portfolio investors have pumped in US$23 billion in 2020, the highest since 2012, when overseas investment in equities was $24.4 billion.

Rising stocks indices helped companies raise money selling shares to local as well as overseas investors. Reliance Industries, the country’s largest, raised almost $31 billion selling shares to overseas institutions and a rights sale of shares to existing investors.

Still, overseas investors sold $14 billion worth of local fixed income securities as the Reserve Bank of India steadily cut its key interest rates to help individuals and companies borrow more to help revive the economy.