7 mins read . 02 Aug 2023
Each month, on the last working day, the Department for Promotion of Industry, and Internal Trade (DPIIT) announces the core sector numbers for the previous month. On July 31, 2023, the DPIIT announced the core sector numbers for the month of June. Core sector growth for June 2023 came in at an impressive 8.2%, but we will come back to that later. What exactly does the core sector growth really mean? In a nutshell, the core sector is a barometer of infrastructure growth in India. Here infrastructure has been dividend into 8 critical sectors that form the backbone of the economy.
The 8 sectors are coal, crude oil, refinery products, natural gas, fertilizers, steel, cement, and electricity. There are 2 reasons why the core sector growth is very critical from a macro standpoint. Firstly, it must be remembered that the core sector basket accounts for 40.27% of overall IIP (index of industrial production). So, if IIP has to grow then it is essential that core sector also grow. Secondly, many of the core sectors like steel, cement, power, and natural gas have strong externalities, in that, they have a multiplier effect on GDP growth.
The table below captures the monthly core sector growth numbers in the shaded column. Remember, these are reported monthly but are annualized core sector growth rates.
Months | Overall (%) | Coal (%) | Crude Oil (%) | Natural Gas (%) | Refinery (%) | Fertilizers (%) | Steel (%) | Cement (%) | Electricity (%) |
Jun-22 | 13.1 | 32.1 | -1.7 | 1.2 | 15.1 | 8.2 | 3.3 | 19.7 | 16.5 |
Jul-22 | 4.8 | 11.4 | -3.8 | -0.3 | 6.2 | 6.2 | 7.5 | 0.7 | 2.3 |
Aug-22 | 4.2 | 7.7 | -3.3 | -0.9 | 7.0 | 11.9 | 5.8 | 2.1 | 1.4 |
Sep-22 | 8.3 | 12.1 | -2.3 | -1.7 | 6.6 | 11.8 | 7.7 | 12.4 | 11.6 |
Oct-22 | 0.7 | 3.8 | -2.2 | -4.2 | -3.1 | 5.4 | 5.8 | -4.2 | 1.2 |
Nov-22 | 5.7 | 12.3 | -1.1 | -0.7 | -9.3 | 6.4 | 11.5 | 29.1 | 12.7 |
Dec-22 | 8.3 | 12.3 | -1.2 | 2.6 | 3.7 | 7.3 | 12.3 | 9.5 | 10.4 |
Jan-23 | 9.7 | 13.6 | -1.1 | 5.2 | 4.5 | 17.9 | 14.3 | 4.7 | 12.7 |
Feb-23 | 7.4 | 9.0 | -4.9 | 3.1 | 3.3 | 22.2 | 12.4 | 7.4 | 8.2 |
Mar-23 | 4.2 | 11.7 | -2.8 | 2.7 | 1.5 | 9.7 | 12.1 | -0.2 | -1.6 |
Apr-23 | 4.3 | 9.1 | -3.5 | -2.8 | -1.5 | 23.5 | 15.3 | 12.0 | -1.1 |
May-23 | 5.0 | 7.2 | -1.9 | -0.3 | 2.8 | 9.7 | 10.9 | 15.3 | 0.8 |
Jun-23 | 8.2 | 9.8 | -0.6 | 3.6 | 4.6 | 3.4 | 21.9 | 9.4 | 3.3 |
Data Source: DPIIT (Department for Promotion of Industry and Internal Trade)
It needs no reiteration that the month of June 2023 has been decisively positive for the core sector and it has also shown a quantum recovery from lower levels. Out of the 8 core sectors, only the crude oil extraction sector showed negative with the other 7 core sectors showing positive growth. This resulted in the overall core sector growth for the month of June 2023 coming in sharply higher at 8.2%.
In the month of June, the core sector growth has been driven higher by steel, cement, and coal production; all having strong multiplier effect on IIP and GDP. But, more than the core sector growth, the positive trend is that even the revisions of previous months have been on the upside. Each month core sector data is subject to a first revision after a month and a final revision after 3 months. The first revision for May 2023 upgraded core sector growth by 70 bps from 4.3% to 5.0%. At the same time, the final revision for March 2023 upped core sector growth by 60 bps from 3.6% to 4.2%. This raises hopes for future months too.
For the month of June 2023, a total of 7 out of 8 core sectors showed positive growth with only the crude oil extraction sector showing negative growth. Here are some important inferences we can draw.
What is important is that this growth came on a very strong base.
Till now, we have focused too much on the core sector in the short term. Let us finally take a longer-term perspective of core sector growth over the last 10-12 years. Here is how it looks including the components of core sector.
Months | Overall (%) | Coal (%) | Crude Oil (%) | Natural Gas (%) | Refinery (%) | Fertilizers (%) | Steel (%) | Cement (%) | Electricity (%) |
2012-13(Apr-Mar) | 3.8 | 3.2 | -0.6 | -14.4 | 7.2 | -3.3 | 7.9 | 7.5 | 4.0 |
2013-14(Apr-Mar) | 2.6 | 1.0 | -0.2 | -12.9 | 1.4 | 1.5 | 7.3 | 3.7 | 6.1 |
2014-15(Apr-Mar) | 4.9 | 8.0 | -0.9 | -5.3 | 0.2 | 1.3 | 5.1 | 5.9 | 14.8 |
2015-16(Apr-Mar) | 3.0 | 4.8 | -1.4 | -4.7 | 4.9 | 7.0 | -1.3 | 4.6 | 5.7 |
2016-17(Apr-Mar) | 4.8 | 3.2 | -2.5 | -1.0 | 4.9 | 0.2 | 10.7 | -1.2 | 5.8 |
2017-18(Apr-Mar) | 4.3 | 2.6 | -0.9 | 2.9 | 4.6 | 0.0 | 5.6 | 6.3 | 5.3 |
2018-19(Apr-Mar) | 4.4 | 7.4 | -4.1 | 0.8 | 3.1 | 0.3 | 5.1 | 13.3 | 5.2 |
2019-20(Apr-Mar) | 0.4 | -0.4 | -5.9 | -5.6 | 0.2 | 2.7 | 3.4 | -0.9 | 0.9 |
2020-21(Apr-Mar) | -6.4 | -1.9 | -5.2 | -8.2 | -11.2 | 1.7 | -8.7 | -10.8 | -0.5 |
2021-22(Apr-Mar) | 10.4 | 8.5 | -2.6 | 19.2 | 8.9 | 0.7 | 16.9 | 20.8 | 8.0 |
2022-23(Apr-Mar) | 7.8 | 14.8 | -1.7 | 1.6 | 4.8 | 11.3 | 9.3 | 8.7 | 8.9 |
2023-24(Apr-Jun) | 5.8 | 8.7 | -2.0 | 0.1 | 1.9 | 11.3 | 15.9 | 12.2 | 1.0 |
Data Source: DPIIT (FY2023-24 data is for 3 months)
The good news is that the annualized quarterly core sector growth for FY24 is higher than the median core sector growth over the last 12 fiscal years. There is something more important. From pre-COVID levels of infrastructure output, the core sector is 18% higher, despite the negative shock in the COVID year. In short, post-pandemic, Indian core sector has bettered the pre-COVID average growth rate.
In the last 11 years till FY23, average core sector growth was 3.6%. So, the latest annualized core sector growth of 5.8% cumulative growth in FY24 is certainly flattering. The capital investment cycle is starting to look up and the government focus on infrastructure is giving the added thrust. It looks like the infrastructure pegs are finally falling in place.
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