Key Highlights
- Core sector growth declined to 2.9% in February 2025, down from 5.1% in January and 7.1% a year ago.
- The slowdown is attributed to an unfavorable base effect and weaker performance in crude oil and natural gas.
- Steel (5.6%) and cement (10.5%) were the primary drivers of growth, with cement benefiting from government capital expenditure.
- Fertiliser output surged 10.2%, the highest in nearly two years, largely due to restocking and base effects.
- Crude oil (-5.2%) and natural gas (-6.0%) saw declines due to lower demand conditions.
- Core sector growth for April-February (FY25) averaged 4.4%, compared to 7.8% in the same period last year.
Sectoral Trends & Analysis
- Steel & Cement Leading Growth:
- Strong infrastructure spending has kept demand for cement and steel high.
- Expected to remain stable in the short term, supported by pre-election spending and private sector investment.
- Fertiliser Surge – Temporary Boost?
- Growth appears driven by restocking rather than structural demand improvement.
- May moderate in coming months once inventories stabilize.
- Crude Oil & Natural Gas – Structural Decline?
- Demand slowdown coupled with limited domestic production growth is weighing on the sector.
- Global crude price movements and energy transition policies could further impact long-term output trends.
Macroeconomic Implications
- Impact on Industrial Production: Core sector industries contribute 40.27% to the Index of Industrial Production (IIP). Slower growth here suggests IIP may also decelerate in the coming months.
- Economic Growth Signal: Lower core sector growth hints at slowing economic momentum, particularly in infrastructure-dependent industries.
- Inflationary Considerations: A dip in refinery products growth (0.8%) could mean stable fuel prices, reducing inflationary pressures.
Outlook & Forecasts
- March Core Sector Growth Projections:
- India Ratings (Ind-Ra): ~4.0%
- Bank of Baroda: ~4.5%
- February IIP Forecasts:
- Ind-Ra: ~3.0%
- Bank of Baroda: 3.0-3.5%
The slowdown in core sector growth underscores base effects, sector-specific challenges, and evolving demand patterns. While steel, cement, and fertilizers provide resilience, crude oil and natural gas continue to struggle. Going forward, government spending and global demand trends will be key determinants of industrial momentum.
TET
