Core sector growth back on track, up to 7.9% in September after 2-month drop

India's core sector growth recovered to 7.9% in September, reversing two months of decline, lifted by a broad-based rebound in key infrastructure sectors. This is expected to boost industrial growth in the month after a surprise 0.8% contraction in August.

The Index of Eight Core Industries tracks output across eight infrastructure sectors - crude oil, natural gas, coal, steel, cement, electricity, fertilisers, and refinery products. The index was up 4.1% in August and 4.5% in July, plummeting from a 13.1% rise in June. Core sector output had grown 5.4% in September 2021.

"The momentum (month-on-month seasonally-adjusted growth) turned positive after a gap of four months in September 2022 with core sector output being 1.7% higher than in August 2022," India Ratings said in a note.


Cement, coal, fertilisers, and electricity output grew 12.1%, 12.0%, 11.8%, and 11.0% respectively in September 2022 from a year earlier. Steel (6.7%) and refinery products (6.6%) saw slightly lower growth.

Crude oil and natural gas output contracted in September at 2.3% and 1.7% respectively.

In line with the fiscal story of higher capital expenditure by the Centre, both steel and cement registered high growth while electricity generation increased as overall economic activity was robust and the backward linkage with coal was forged, said Bank of Baroda chief economist Madan Sabnavis.

"Cement and steel have led the upside relative to our expectations, hinting at a pickup in construction activity," said Aditi Nayar, chief economist, ICRA.

The Outlook
Economists said industrial recovery still has a lot of ground to cover. "No doubt the year-on-year growth as per the latest figures has been good, but the core sector output continues to be weak when compared with the pre-Covid level (February 2020)," said Sunil Kumar Sinha, principal economist at India Ratings and Research.

The output in September is just 3.1% higher than the pre-Covid level, they pointed out.

Industrial production
The eight infrastructure sectors included in the core sector index have a 40% weight in the Index of Industrial Production (IIP).

The better-than-expected core sector performance suggests a recovery in industrial production growth. "Based on growth of 7.9% in September, we may expect growth in the region of 4-5% in IIP," said Sabnavis.