India’s core sector growth slows to 6.3% in May, as refinery, steel output ease

New Delhi: India's infrastructure output, which accounts for about two-fifths of the country's industrial production, rose 6.3% year-on-year in May, decelerating from April's 6.7% expansion, hurt by a contraction in cement and crude oil and a slowdown in refinery products and steel, provisional data from the ministry of commerce and industry released on Friday showed.

During March, the output of eight core industries - coal, crude oil, steel, cement, electricity, fertilisers, refinery products, and natural gas - expanded at 6%.

Also Read: Natural gas, electricity, steel drive core sector growth to 6.2% in April

Core sector output had risen by 5.2% in May 2023.

Industry performance

The latest core sector data showed that five of the eight core industries reported a rise in production, while output in crude oil, fertilisers and cement sectors contracted during May.

Coal production grew 10.2% while electricity output expanded by 12.8%. Output growth in natural gas and steel decelerated sequentially to 7.5% and 7.6%, respectively, in May.

The output in refinery products, which account for over 28% in the index of the eight core industries, grew by a mere 0.5% in May, slowing sharply from April's 3.9%.

Production of crude oil, fertilisers and cement contracted by 1.1%, 1.7% and 0.8% during the month.

Experts say

Experts said cement production fell during May due to a high base effect of last year - output in the sector had expanded by 15.9% in May last year - and a slowdown in infrastructure projects during the month due to elections, while refinery products and crude oil witnessed low and negative growth, respectively, mainly due to lower demand for diesel.

"The base effect did provide a prop to segments, which did well. Power sector growth of 12.8% was mainly due to the heatwave, which led to higher demand," said Madan Sabnavis, chief economist, Bank of Baroda.

Also Read: Seasonal headwinds for India’s manufacturing sector

"Higher power generation also led to higher growth in mining as coal production increased. Steel growth at 7.6% was propped up by government spending and the auto sector," he added.

Production growth across the eight core industries in FY24 stood at 7.6%, the slowest in three years. However, FY24 outperformed most years of the Modi administration, barring FY22 and FY23, when growth rates were at 10.4% and 7.8%, respectively.

Overall manufacturing activities slowed down in May as intense heatwaves resulted in reduced working hours, impacting volumes.

Also Read: Heatwaves to result in production loss in heat-intensive industries

India’s manufacturing activity slipped to a three-month low in May, according to a survey by S&P Global released earlier in June.

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