Core sector picks up 18.2% despite strong base

The core sector or the Infrastructure Sector growth for the month of May 2022 was announced on the last day of June. The core sector growth for May 2022 came in at 18.1% on a yoy basis, as compared to the same period in Mary 2021. The core sector growth in May 2022 has bettered the growth of 8.4% recorded in the month of April 2022. The trend has been in the positive despite a fairly robust base in the same month last year showing that the infrastructure segment was beginning to genuinely pick up momentum.

What exactly is this core sector all about? It broadly comprises of 8 infrastructure sectors with weights assigned to each of them. The 8 core sectors are coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity. In all cases, the growth in output is what is considered. The core sector is important because this accounts for nearly 40.27% of the IIP basket and hence acts as a very important lead indicator of IIP growth as well as of GDP growth. This has generally been a reliable indicator.

For the month of May 2022, the solid growth in the core sector output was driven specifically by sectors like cement, coal, fertilizers and electricity generation; with all of them reporting robust growth over the May 2021 period. However, May 2021 was a period when the resurgence of COVID was in full swing so we have to take the numbers with a pinch of sale. For instance, the coal output grew by 25.1%, fertilizers grew by a whopping 22.8% while cement grew at a healthy clip of 26.3% and power generation at 22%. 

The core sector growth of 18.1% in the May 2022 month is all the more impressive because the core sector output had grown by over 16% in the May 2021 period, showing that solid growth over pre-COVID levels was beginning to show up. There was also a positive revision in growth. For example, the final core sector growth for the month of February 2022 was revised up by 10 basis points from 5.8% to 5.9%. For the April May 2 month period, the core sector growth stood at a healthy clip of 13.6% compared to corresponding period last year.

The good news was that all the 8 core sectors showed positive growth in the month of May 2022. For instance, Crude oil production increased 4.6% in May 2022 while natural gas in May 2022 was up by 7% on a yoy basis. Refining also saw a 16.7% jump in output in May 2022 compared to the previous year while steel production was up by 15.1% in the month of May, despite headwinds of weak demand coming from tepid exports to Europe post the export levies as well as weak demand for steel from the Indian auto sector.