Core sector growth remains tepid, but IIP likely to pick up

The good news is that core sector growth is expected to improve in November after the festive season, supported by higher production of cement, steel, fertilisers, and coal. However, the bad news is that it remained tepid at 1.8 per cent when compared to 5.8 per cent in the year-ago period.

It is, in fact, a tell-tale of the Index of Industrial Production, or IIP, rising by 3.5-4.5 per cent for the month.

To elaborate, the sequential improvement in YoY growth between October and November was led by a majority of the sectors, with a particularly sharp pickup in cement. Given the base effects and shift in the festive calendar, it would be more prudent to assess the average for October and November, which stands at a meagre 0.8 per cent, lower than the average growth of 3.0 per cent recorded in H1. Based on the growth of the core sector and other high-frequency indicators, Icra expects the IIP to rise by 3.5-4.5 per cent in November.

The combined Index of Eight Core Industries, which tracks coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity, accounts for 40.27 per cent of the weight of items in the IIP. The final growth rate of the core sector for October stood at 0.1 per cent, revised slightly upwards from the provisional 14-month-low.

On the other hand, a host of other sectors witnessed decline during the month. They include crude oil, natural gas, petroleum refinery products and even electricity generation. On a cumulative basis for April–November, steel and cement remained the strongest performers. Fertiliser production,refinery products moved northwards. The turnaround follows a turbulent late-monsoon phase that weighed on output in October. Through much of the year, the eight core industries have swung between strength and stress. August had seen robust growth of nearly 7 percent, powered by double-digit expansion in coal and electricity, but momentum faded steadily thereafter.

November’s improvement reflects firmer construction and infrastructure activity, with steel and cement output rising strongly, signalling sustained demand as the economy heads into the investment-heavy year-end period. Fertiliser production also posted healthy growth, aided by seasonal rural demand ahead of the rabi sowing cycle and a favourable base effect.

The recovery, however, remains uneven. Crude oil and natural gas production continued to contract, extending a prolonged downtrend linked to aging fields and limited new capacity additions. Petroleum refinery products also showed subdued performance, reflecting slower refining activity amid volatile global prices and adjustments in domestic demand.

Overall, November’s rebound suggests that core sector momentum has stabilised after the October dip, but the recovery is still narrow-based. With energy-related segments under strain, the sustainability of growth will depend on whether construction-led demand can offset continued weakness in hydrocarbons and power in the coming months.

Of course, a rise in IIP signals expanding industrial output, which boosts GDP, employment, and investment, indicating economic health and growth.