India’s Core Sector Growth Skyrockets to 5-Month High in June

India's core sectors experienced a significant rebound in June 2023, with a growth rate of 8.2 per cent, marking the highest in the last five months. The Ministry of Commerce and Industry released the data on July 31, revealing a strong recovery in key infrastructure sectors, including coal, crude oil, steel, cement, electricity, fertilizers, refinery products, and natural gas. This article explores the factors contributing to the impressive growth, analyzes the performance of each sector, and outlines the overall outlook for India's industrial growth.

June's Robust Growth and May's Revised Figures

The core sector growth for June soared to 8.2 per cent, surpassing May's revised figure of 5.0 per cent, which was upgraded from 4.3 per cent. It's worth noting that June 2022 experienced an exceptional growth rate of 13.1 per cent, mainly attributed to a favourable base effect. However, this year's performance still reflects an outstanding recovery despite the ongoing challenges.

Analysis of Sector-wise Growth

1. Steel Sector:

Among the key sectors, steel stood out with a remarkable growth rate of 21.9 per cent in June, doubling the growth rate of 10.9 per cent recorded in May. This substantial expansion in steel production showcases the resilience of India's manufacturing sector.

2. Electricity Sector:

Electricity production displayed a considerable improvement, rising by 3.3 per cent in June, compared to a modest growth of 0.8 per cent in May. Experts believe the sluggish onset of the monsoon played a role in enhancing the performance of electricity, along with other sectors such as coal.

3. Coal Sector:

Coal output witnessed a notable surge of 9.8 per cent in June, indicating a considerable recovery from previous months. This growth can be attributed to the increased demand for energy as economic activities picked up pace.

4. Fertilizer Sector:

The fertilizer sector experienced a slower growth rate of 3.4 per cent in June, compared to 9.7 per cent in May. Despite the moderation in growth, the sector maintained a positive trajectory, contributing to the overall recovery.

Factors Influencing June's Growth

Economists, including Aditi Nayar from ICRA, suggest that the tardy onset of the monsoon played a role in boosting the performance of sectors like electricity and coal. The delayed monsoon prompted increased energy consumption, driving up production in these areas.

Comparison with Previous Quarters

While June's growth rate of 8.2 per cent is promising, the cumulative growth for the first quarter (April-June) of 2022-23 stands at 5.8 per cent. This is a significant drop from the robust growth of 13.9 per cent achieved in the first three months of the previous fiscal year. The economic impact of the pandemic and other uncertainties might have contributed to this moderation.

Outlook for Industrial Growth

Despite the moderation observed in some high-frequency indicators, Aditi Nayar anticipates the overall industrial growth in June to remain resilient. With core industries accounting for over 40 per cent of the weight of the Index of Industrial Production, Nayar predicts a growth range of 4-6 per cent for June. This projection underscores the economy's ability to maintain a positive trajectory despite challenges.

India's core sectors showed remarkable resilience and rebounded with an impressive growth rate of 8.2 per cent in June 2023. Notably, the steel sector led the recovery, followed by electricity and coal. While the growth rate for the first quarter has moderated compared to the previous year, the overall outlook for industrial growth remains optimistic. As the economy navigates through uncertainties, it is evident that the core sectors are playing a crucial role in driving India's economic recovery.