Core output grows at series high of 7.9% in Sept

India's core sector output growth surged to a series high of 7.9% in September, propelled by robust expansion in coal, electricity, refinery products, and iron ore, according to data released on Wednesday. The year-on-year growth rate stood at 5.9% in August and 3.1% in the same month last year.

Madan Sabnavis, chief economist at Bank of Baroda, noted that the buoyant growth in infrastructure, where the government has been spending heavily, particularly on roads, bolstered demand for cement. Meanwhile, railway outlays contributed to increased iron and steel production.

Aditi Nayar, chief economist at ratings firm ICRA, attributed the strong core output growth to a favorable base effect, marking the fastest pace since India transitioned to the new index series. This was the fourth reading based on the revised index with 2022-23 as the base year, replacing 2011-12. The updated series now includes iron ore, elevating the count of core industries to nine. Ferroalloys, which were previously excluded, are now part of the calculation.

Refinery products showcased the strongest growth in the new series, expanding by 10.3% year-on-year in September, up from 5.6% in August. This surge reflects heightened industrial activity as fuel demand grew, with exports also contributing to the increase, Sabnavis explained. Coal production rebounded significantly, with a 10.7% growth in September, following a contraction of 3.8% in the prior month.

Iron ore output rose 18.4% compared to 5.5% in the previous period. These gains were aided by a low base, coupled with a stronger sequential uptick in coal production amid limited stockpiles at power plants, Nayar added.

Electricity generation growth moderated slightly to 11.4% in September from 13.1% in August, driven by high demand due to heat waves. Steel output expanded by 4.9%, the fastest pace in three months, compared to 3.5% in August. Cement production grew 9.8%, a decline from 11.7% in the previous month. Fertilizer production continued its decline, dropping by 11.7% year-on-year in September, compared to a 12.4% fall in August.

Natural gas and crude oil output remained in negative territory, contracting by 4.6% and 1.4%, respectively. The oil complex suffered as imports dominated, and higher fertiliser imports adversely affected production, Sabnavis noted.

The core sector accounts for 40.27% of the Index of Industrial Production (IIP). Bank of Baroda forecasts IIP growth of 7.5-8.5% for September, while ICRA expects a slight moderation to 6-7% from 8% in August, as an elevated base may dampen growth in the non-core segment.