India's Core Sector Growth Slows Down to 2.9% in February: A Yearly and Monthly Analysis

India's core sector growth witnessed a notable decline in February 2025, slowing down to 2.9% compared to the robust 7.1% growth recorded in February 2024. This reduction marks the weakest expansion in the core sector over the past five months, underscoring the challenges faced by key infrastructure industries. The eight core industries, which include coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, and electricity, collectively contribute 40.27% to the Index of Industrial Production (IIP).

Impact of High Base Effect and Economic Factors

The slowdown in core sector growth is attributed to a high base effect, primarily due to the leap year's influence, coupled with weaker output in five of the eight industries. This decline reflects broader economic trends, including muted capital expenditure and manufacturing sector performance. The leap year effect often complicates year-over-year comparisons, leading to fluctuations in growth rates. Moreover, India's revised capital expenditure targets and a decline in state-level capital outlay have further contributed to this slowdown.

Key Highlights of Core Sector Performance

In February 2025, the performance of the core industries was mixed, with some sectors seeing annual growth while others faced contraction:

• Cement and Fertilizers: These two sectors were the only ones to report a higher output compared to the previous year, with cement growing by 10.5% and fertilizers by 10.2%.
• Steel Production: It increased by 5.6%, indicating a moderate improvement from January's 4.7% growth.
• Electricity Output: Slightly higher than the previous month, electricity generation grew by 2.8%.
• Coal Output: At a six-month low, coal production increased by only 1.7%.
• Refinery Output: The growth was the slowest in six months at 0.8%.
• Crude Oil and Natural Gas: Both sectors contracted, with crude oil output down by 5.2% and natural gas by 6%.

Economic Implications and Outlook

The core sector performance has significant implications for the overall industrial growth, as it accounts for nearly 40% of the IIP. The mild growth in February is expected to keep the IIP growth around 3% for the same month, slightly lower than the 5% recorded in January. The Manufacturing Purchasing Managers' Index (PMI) also dropped to 56.3 in February from 57.7 in January, reflecting a slowdown in industrial activity.

Given the current trends, the manufacturing sector is likely to see subdued growth this fiscal year compared to the double-digit growth in the previous year. This subdued performance aligns with weaker capital expenditure, both at the central and state levels, where spending has been muted due to various factors, including election impacts.

Analysis of Sector-Wise Growth

Cement

Cement production was one of the few bright spots, with a 10.5% increase in February over the previous year. This growth indicates robust demand in the construction sector, which is crucial for overall infrastructure development.

Fertilizers

Fertilizer production also saw a significant annual increase of 10.2% in February. This rise points to a strong agricultural sector, where fertilizer demand is critical for crop yields and food security.

Steel

Steel, with a growth of 5.6%, improved slightly from January. This moderate growth suggests stability in the steel industry, which is essential for construction and manufacturing sectors.

Electricity

Electricity generation increased by 2.8%, indicating steady domestic and industrial demand. This stable growth supports the broader economic activities that rely heavily on electricity supply.

Coal and Refinery

Coal and refinery sectors faced challenges, with coal output at a six-month low and refinery production growing marginally. These sectors are critical for energy security and industrial inputs, highlighting the need for improved production efficiency.

Crude Oil and Natural Gas

The contraction in crude oil and natural gas further accentuates the need for diversified energy sources and more robust production strategies to meet domestic demand.

Conclusion and Future Prospects

India's core sector growth in February underscores the complexities of managing economic recovery and industrial growth amidst challenges like high base effects and muted capital expenditure. To maintain robust industrial production and achieve higher growth, it is essential to boost capital spending, address sector-specific challenges, and ensure consistent output across all core industries. Additionally, diversifying energy sources and enhancing production in critical sectors like crude oil and natural gas will be crucial for sustaining economic momentum.

As India navigates these challenges, focusing on strategic investment in infrastructure and manufacturing could help mitigate the impact of slower core sector growth. Moreover, strategies to enhance state-level capital outlays and address election-related spending lags will be vital in achieving the fiscal targets for FY25.

Key Takeaways:

• Core Sector Growth: Slowed to 2.9% in February 2025, marking a five-month low.
• High Base Effect: Significantly impacted year-over-year comparisons due to the leap year.
• Sectoral Performances: Only cement and fertilizers recorded higher annual outputs, while coal, crude oil, and natural gas faced challenges.
• Economic Outlook: Expected IIP growth may be around 3%, reflecting subdued industrial activity.
• Manufacturing PMI: Dropped to 56.3, indicating slower industrial activity.