India's core sector output grew by 12.1% in October on low base effect

India’s core sector output, that measures production by eight industries, grew 12.1 per cent in October compared to the same time last year, the government said on Thursday.

A low base effect and double-digit growth in four industries – electricity, coal, steel, and cement – drove up production. The core sector output had recorded a 0.7 per cent growth in October 2022.

The figures for September were revised upward to 9.2 per cent from 8.1 per cent earlier.

“This is a good sign as it reflects higher levels of activity in the infra space, which has been supported by the central government and some state governments,” said Madan Sabnavis, chief economist, Bank of Baroda about the October numbers.

 

Aditi Nayar, chief economist, head research and outreach at ICRA, said that the rebound in core sector output must be viewed in the context of early onset of the festival season in 2022.

“This shift in the festive calendar obfuscates year-on-year comparisons in October and November, thereby making it more meaningful to look at the average year-on-year growth performance for these months,” she said.

The electricity sector grew at 20.3 per cent compared to the same month last year, marking its best growth in 16 months. The cement sector rose by 17.1 per cent and coal by 18.4 per cent. The growth in steel, however, decelerated to 11 per cent, the lowest since October 2022.

Sabnavis said higher growth in the mining and electricity sectors was aided by the low base effect. “Higher power growth indicates good economic activity supported by the coal sector.”

Crude oil production increased by 1.3 per cent in October after contracting 0.4 per cent in September. Natural gas grew by 9.9 per cent, fertilisers by 5.3 per cent, and refinery products by 4.2 per cent.

“The oil complex also did well though crude oil was down mainly due to stable prices. For natural gas and refinery products the indication of a higher level of activity -- both domestic and exports is reflected here,” said Sabnavis.

Core sector growth stood at 8.6 per cent in the April-October quarter compared to 8.4 per cent in the same period in financial year 2022-2023 (FY23).
 

As the eight industries account for 40.27 per cent of the weight in the Index of Industrial Production (IIP), they have a considerable impact. The IIP in September was recorded at a three-month low of 5.8 per cent.

Of the 23 manufacturing sectors under consideration in the IIP, nine witnessed a contraction in production output.

“IIP growth for the month would tend to be in the 6-8 per cent range provided support comes from consumer goods where there are mixed pictures being seen in the run up to the festival season,” said Sabnavis.