Core sectors recorded growth of 8.4% for the month of April\u201922 as per the ministry of commerce data highest in last six months. For FY22, index grew by 10.4% and is 3.4% higher than pre-pandemic value. Five out of the eight have recorded increase of more than 8% in April\u201922 and more than 6% during FY22 over their FY20 level. Performance of core sectors is of greater significance as most of the these are not consumed directly but cater to\u00a0other industrial segments. So, the increase in their production indicates significant momentum in industrial activity. Here is a brief look at the composition of eight core industries and their performance.<\/p>\n
The eight core sectors comprise of coal, fertilizers, cement, electricity, crude oil, natural gas, petroleum refining and Steel. Out of these, petroleum refining has the highest weight of 28% whereas cement and fertilizer has the lowest weight of 5% and 3% respectively. Core sector, together, command a weight of 40% in IIP and impact the performance of IIP both directly and indirectly.<\/p>\n
Out of these eight,\u00a0cement and electricity are almost completely produced and consumed domestically and its performance indicates changes in domestic demand. Cement has recorded growth of as much as 21% during FY22 driven by significant increase in construction activity. The figure is 7.8% higher FY20 and much above the average growth of 4.9% during FY13-20. Electricity sector has also recorded impressive growth at 10.7% in April\u201922 and 8% during FY22. FY22 growth is 7.4% higher than FY20, higher than 6% during FY13-20. However, electricity generation is actually lagging behind the demand over last two months, possibly, a result of lack of demand planning. While coal was also largely a\u00a0domestic industry, sharp increase in capacity addition in power generation without similar increase in mining capacity has led to demand-supply mismatch and sharp increase in imports. Coal mining has risen by 8.5% during FY22 which is 6.5% higher than FY20. The growth is significantly higher than average growth of 3.7% during 2013-20. With sharp increase in electricity and subsequently coal demand, coal mining industries put-in some extra effort resulting in sharp increase of 29% during the month of April\u201922.<\/p>\n
Steel is an interesting sector which has recorded marginal decline of 0.7% in April\u201922 but grew by 17% in FY22. Over FY20, growth rate is 6.9%, better than average 5.5% till FY20. The sector had a bumper year with significant global demand and limited production capacity leading to sharp increase in prices and profits. The excessive profits, affecting other consuming industries, compelled government to impose 15% duty on steel exports in May\u201922 which should cool down the prices.<\/p>\n
Out of the remaining four, production of Oil and Natural gas is impeded by lack of domestic reserves and more than 85% of oil and about 60% of gas needs is met through imports. Oil production has been declining consistently over last several years with decline in FY22 being 7.7% over FY20. Since FY12, production has declined by as much as 22%. In case of natural gas, FY22 was a good year with production increasing by 19.2% over FY21 and 9.5% over FY20. However, likelihood of its production increase maintaining this pace is low. Even though the production of oil has decline, it does not indicate lack of demand. It only means the country is importing more.<\/p>\n
Fertilizers is an important sector where imports were significant peaking at $7 bn in 2012 but with increase in domestic production capacity, the same has come down to $1.4 bn in 2020. The sector grew by 8.7% in April\u201922 on top of growth of 15.2% in March\u201922. However, these were unusual months and its FY22 growth is only 2.4% over FY20. Yet, this is better than average growth of 1.2% during FY13-20. Even though fertilizers is sold at highly subsidized rate, timely payment of the difference between cost price and sale price by the government has helped the sector manage its growth and reduce import dependency.<\/p>\n
The only sector, out of the eight core industries, where India has surplus capacity and where it is exporting about 20% of domestic production in petroleum refining. Even though other sectors have done largely better than pre-pandemic level (except crude oil), refining has lagged with production decline of 3.3% over FY20. But this was not because of low domestic demand but continued sluggishness in global market. The Russian attack on Ukraine has created a global mismatch helping refining units ramp up their production and record average growth of 8% over last three months.<\/p>\n
While the core sectors are, indeed, the catalyst for growth of other sectors, the production index is not a true reflection of demand for these commodities or industrial activity. This is so because, as mentioned above, Oil, Gas and to some extent, Coal face domestic availability or production constrains. On the other hand, products such as Steel, petroleum refining have a highly integrated global market and domestic production is significantly driven by global demand. A more appropriate measure to gauge underlying domestic demand and in turn, industrial activity, could be production plus net imports of these commodities.<\/p>\n
Please look at the attached sheet for more insights<\/p>\n