Core Sector Growth Increased 6.3% in May, Helped by Natural Gas, Coal, and Electricity

The output of coal, natural gas, and electricity increased significantly in May, accounting for 6.3% of India’s growth in the core sectors. While this is a little less than the 6.7% rise in April, it is still a strong showing when compared to the 5.2% growth rate in the same month the previous year.

Important Growth Accelerators

With a combined 40.27% share in the Index of Industrial Production (IIP), the eight core sectors of coal, crude oil, natural gas, fertilizers, steel, cement, and power are crucial to the nation’s industrial production. May saw increases in electricity generation of 12.8%, natural gas production of 7.5%, and coal output of 10.2%. Compared to May 2023, when coal grew by 7.2%, natural gas decreased by 0.3%, and electricity rose by 0.8%, these industries performed noticeably better.

But there were difficulties in several industries. Production of cement decreased by 0.8%, crude oil by 1.1%, and fertilizer by 1.7%. The uneven nature of the recovery is highlighted by the slowdown in these sectors. Steel and refinery products both saw slower growth rates, falling to 7.6% and 0.5%, respectively.

Performance for the Fiscal Year

The output of these essential industries increased by 6.5% in the first two months of the fiscal year (April and May), which is a significant rise from 4.9% in the same period of the previous fiscal year. This total gain is encouraging since it shows how important manufacturing sectors have remained resilient in the face of numerous economic difficulties.

Economic Effects and Perspectives

While the core sector growth was above 6% for the fourth consecutive month, May saw a minor slowdown, according to ICRA Chief Economist Aditi Nayar. Certain sectors may have seen a reduction in activity and execution due to factors like the nationwide heatwave and the staged parliamentary elections.

The data emphasizes how differently various sectors have performed. Some have had remarkable expansion, such as electricity, natural gas, and coal, while others are still experiencing production reductions. The overall stability and growth potential of the economy may be impacted by this gap.

Context of Fiscal Deficit

By the end of May, the central government’s budget deficit was 3% of the yearly predictions, indicating good financial health. Compared to the 11.8% deficit seen over the same period previous year, this is a substantial decrease. Analysts credit the Reserve Bank of India (RBI) for significant dividend transfers and a reduction in capital expenditure during the election season for this improvement. For this fiscal year, the government has set a target of 5.1% of GDP for the budget deficit.

In summary

India’s industrial landscape has both strengths and weaknesses, as shown by the May core sector data. Growth is fueled by essential industries like coal, natural gas, and electricity, but problems with the production of cement, crude oil, and fertilizer draw attention to other issues. Sustained growth in these core sectors will be essential for sustaining the economic momentum and accomplishing more general development goals as the fiscal year goes on.

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