Growth in India’s core sector slows to 6.3% in May as refinery and steel output declines

New Delhi: India’s infrastructure output, which accounts for about two-fifths of the country’s industrial output, rose 6.3% year-on-year in May, slowing from April’s 6.7% growth, weighed down by falling cement and crude oil prices and a slowdown in refined product and steel prices, provisional data from the commerce and industry ministry showed on Friday.

In March, output by eight key industries – coal, oil, steel, cement, electricity, fertilizers, refined products and natural gas – rose by 6%.

Core sector production increased by 5.2% in May 2023

Industry performance

The latest data on key sectors shows that five of the eight major industries recorded an increase in production, while output in the oil, fertiliser and cement sectors contracted in May.

Coal production increased by 10.2% and electricity production increased by 12.8%. Natural gas and steel production growth decelerated sequentially to 7.5% and 7.6%, respectively, in May.

Output of refined products, which account for more than 28% of the index of eight major industries, rose just 0.5% in May, slowing sharply from 3.9% in April.

Production of crude oil, fertilizers and cement decreased by 1.1%, 1.7% and 0.8% respectively during the month.

Experts say

Experts said cement production fell in May due to a high base from last year – production in the sector rose 15.9% in May last year – and a slowdown in infrastructure projects this month due to the elections, while refined products and crude oil posted weak and negative growth, respectively, mainly due to lower demand for diesel.

“The base effect really supported the segments that were doing well. The 12.8% growth in the power sector was mainly due to the heatwave, which led to higher demand,” said Madan Sabnavis, chief economist, Bank of Baroda.

“Higher electricity production also led to higher growth in mining, along with increased coal production. Steel production growth of 7.6% was supported by government spending and the auto sector,” he added.

Output growth across eight major industries in FY24 was 7.6%, the slowest in three years. However, FY24 was better than most years of the Modi administration, except FY22 and FY23, when growth rates were 10.4% and 7.8%, respectively.

Overall manufacturing activity slowed in May as intense heatwaves resulted in reduced operating hours, affecting sales volumes.

According to an S&P Global survey published in June, manufacturing activity in India fell to its lowest level in three months in May.

The final HSBC India Manufacturing Purchasing Managers’ Index (PMI), compiled by S&P Global, fell to 57.5 in May from 58.8 in April.