Core sector for April 2022, flatters at 8.4% growth

Core sector growth jumps to 8.4%

by 5paisa Research Team Last Updated: Jun 01, 2022, 05:49 PM IST

The DIPP announced the core sector growth numbers for April 2022 on the last day of May 2022. Core sector is a collection of the production numbers of 8 core infrastructure sectors. The core sector growth for April 2022 came in at a 6-month high of 8.4% with solid performance from coal, refining and power.

The 8 core sectors include coal, electricity, steel, cement, oil extraction, refining, natural gas and fertilizers. 
In the month of March 2022, the core sector had expanded by 4.9%. Now why is core sector so important. Firstly, it is the index of infrastructure sector in the economy.

Secondly, core sector has about 42% weight in the IIP (index of industrial production) basket, which is what makes the core sector growth a key lead indicator of IIP and GDP growth. Above all, core sector growth has strong externalities as cement and steel have strong multiplier effects.

The last time that India saw such robust core sector numbers was in October 2021, when the core sector growth was at 8.7%, albeit on a much lower base. The star among the core sectors was coal, which saw output grow by 28.8% in April.
 

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This is largely due to the base effect and also because Coal India (with 80% share in coal mining) had boosted output to meet the rising demand of power sector. Electricity production also spiked by 10.7% YoY.

Among other major core sectors, the positive triggers came from petroleum refining which saw good growth of 9.2%. Most of the refiners are benefiting from high gross refining margins (GRMs) as well as inventory translation gains amidst rising crude prices.

With free pricing allowed, even natural gas production rose by 6.4% in April 2002 while the production of fertilizers got an 8.7% boost ahead of the Kharif season.

Among the other core sectors, cement saw growth of 8% in April 2022 and this was despite the sharp spike in freight, power and fuel costs as construction demand has picked up. Among sectors that saw contraction in output; crude extraction fell by 0.9% due to ageing wells of ONGC.

In addition, with the supply chain constraints, including the shortage of coking coal, the steel output for April 2002 also fell by 0.7%. The core sector is normally seen on a YoY basis for the month and on a cumulative basis for the fiscal year.

Normally, the YoY growth is sufficient. However, since the output is growing on a low COVID base, YoY may be rather misleading. In most cases, looking at FY22 growth in core sector over FY20 core sector can give more insights. This is an important lead indicator for the IIP and the GDP growth triggers in the economy.

Also Read:-

Q4FY22 GDP tapers to 4.1% as FY22 GDP comes in at 8.7%

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