How were the core sector numbers announced on last day of May 2022?
Answer
Answer
Core sector or the infrastructure sector saw 8.4% positive growth in the month of April 2022 on a yoy basis. The core sector growth this month is at a 6-month high with strong and robust performance from coal, refining and power. When we talk of the core sector basket in the Indian context, the 8 core sectors include coal, electricity, steel, cement, oil extraction, refining, natural gas and fertilizers.
Why is the core sector so important. The core sector has about 41% weight in the IIP (index of industrial production) basket, and therefore the core sector growth becomes an automatic lead indicator of IIP and GDP growth. That is not all. The core sector growth has strong externalities as cement and steel have strong multiplier effects, in the sense that a 1% growth in steel or cement leads to more than 1% growth in GDP output.
The star among the core sectors was coal, where output grew by 28.8% in April 2022. Coal India (with 80% share in coal mining) had boosted output to meet the rising demand of power sector. In addition, large manufacturers also spruced up their captive coal mining capacity. One of the big beneficiaries of this coal boom was the power sector, which still relies largely on coal driven thermal power. Electricity production also spiked by 10.7% yoy.
Positive triggers also came from petroleum refining which saw 9.2% growth on yoy basis. Oil refining companies have benefited from high gross refining margins (GRMs) as well as inventory translation gains on their stock holdings. With free pricing being permitted, even natural gas production rose by 6.4% in April 2002. Meanwhile, the subsidy boost and the upcoming Kharif season also gave a 8.7% boost to fertilizers output.
The core sector is normally seen on a yoy basis for the month and on a cumulative basis for the fiscal year. A much better way is to look at the MOM basis to capture the high frequency growth in output. The MOM core sector is down -9.5% over March 2022 and shows the pressure of factors like high inflation, supply chain bottlenecks and central bank hawkishness is gradually building up and impacting high frequency data.