Core sector growth bounces back to a three-month high in February

Growth in output of the eight key infrastructure sectors — known as the core sector — rose to a three-month high of 6.7 per cent year-on-year (Y-o-Y) in February from 4.1 per cent in January.

According to data released by the Ministry of Commerce and Industry on Thursday, output accelerated in sectors like crude oil (7.9 per cent), refinery products (2.6 per cent) and electricity (6.3 per cent). Also, during February, double-digit growth was seen in sectors like coal (11.6 per cent), natural gas (11.3 per cent) and cement (10.2 per cent).

Meanwhile, growth in the output of steel decelerated (8.4 per cent) sequentially during February. On the other hand, output of fertilisers (-9.5 per cent) contracted for the second consecutive month in February. In February 2023, the core sector had recorded a growth of 7.4 per cent.

Meanwhile, cumulative growth in the core sector for the April- February period this year stood at 7.7 per cent compared to 8.2 per cent for the same period in the previous financial year.

The eight core industries account for 40.27 per cent of weighting of items included in the Index of Industrial Production (IIP). Thus, they have a significant impact on the index.

Madan Sabnavis, chief economist, Bank of Baroda, said there has been all-round performance across the eight sectors, barring fertilisers.

This can be explained by the high-base effect and the fact that this is the period of harvest. As a result, there is less demand for products.

“High growth in steel and cement reflect growth in the construction sector in particular. The auto sector, too, has contributed to the demand for steel. IIP growth can be expected between 4 and 5 per cent, which is due to the growth in electricity,” he added.

Echoing similar views, Rajani Sinha, chief economist, CARE Ratings, said with uptick in the core sector, she expects IIP growth to improve to around 5.5 per cent in February from 3.8 per cent in the previous month.

“In the financial year so far, we have seen healthy growth by the coal, steel and cement sectors. Robustness in the core sector has been supported by upbeat government capex. We could see core sector growth improve further as private capex picks up in the coming quarters,” she added.