Core sector growth sequentially flat for April 2023 at 3.5%

3 Jun 2023 , 05:04 AM

On the last day of May 2023, the Office of the Economic Advisor announced core sector growth numbers for the month of April 2023. Incidentally, this marks the first month of the new fiscal year FY24, and we already have full financial year figures for FY23 for the core sectors. The core sector, incidentally, is a barometer of the infrastructure growth in India, and is a collection of 8 basic building blocks of the economy. In India, the core sector growth is reported with a lag of one month. Core sector growth comprises of coal, crude oil, refinery products, natural gas, fertilizers, steel, cement, and electricity. What is so significant about this core sector growth? The core sector basket accounts for 40.27% of overall IIP basket, and hence is an important lead indicator of manufacturing GDP. Within the core sector basket, refinery products, electricity and steel have the highest weightage.

One of the downsides of the core sector data is that, being yoy data, it is vulnerable to the base effect. For instance, in October 2022, the core sector growth had dipped below 1%, but has since recovered. While core sector growth did bounce to a high of 9.7% in January 2023, it has since tapered to around the 3.5% mark. For April 2023, the core sector growth was almost sequentially flat at 3.5%. However, the base growth in April 2022 was 9.5% against a base growth of just 4.8% in March 2022. That makes the April 2023 core sector growth more impressive. Let us look at the revisions. The first revision for March 2023 has left the core sector growth steady at 3.6%. The final revision for January 2023 pegged core sector growth 80 bps higher from 8.90% to 9.70%. Clearly, the revisions are being decisively positive and that bodes well for the core sector growth of April 2023 too.

Months	Overall (%)	Coal (%)	Crude Oil (%)	Natural Gas (%)	Refinery (%)	Fertilizers   (%)	Steel  (%)	Cement (%)	Electricity   (%)
Apr-22	9.5	30.1	-0.9	6.4	9.2	8.8	2.5	7.4	11.8
May-22	19.3	33.5	4.6	7.0	16.7	22.9	15.1	26.2	23.5
Jun-22	13.1	32.1	-1.7	1.2	15.1	8.2	3.3	19.7	16.5
Jul-22	4.8	11.4	-3.8	-0.3	6.2	6.2	7.5	0.7	2.3
Aug-22	4.2	7.7	-3.3	-0.9	7.0	11.9	5.8	2.1	1.4
Sep-22	8.3	12.1	-2.3	-1.7	6.6	11.8	7.7	12.4	11.6
Oct-22	0.7	3.8	-2.2	-4.2	-3.1	5.4	5.8	-4.2	1.2
Nov-22	5.7	12.3	-1.1	-0.7	-9.3	6.4	11.5	29.1	12.7
Dec-22	8.3	12.3	-1.2	2.6	3.7	7.3	12.3	9.5	10.4
Jan-23	9.7	13.6	-1.1	5.2	4.5	17.9	14.3	4.7	12.7
Feb-23	7.2	8.5	-4.9	3.2	3.3	22.2	11.6	7.4	8.2
Mar-23	3.6	12.2	-2.8	2.7	1.5	9.7	8.8	-0.6	-1.6
Apr-23	3.5	9.0	-3.5	-2.8	-1.5	23.5	12.1	11.6	-1.4

Data Source: DPIIT (Department for Promotion of Industry and Internal Trade)

The table above is a detailed, analysis of the overall core sector growth trend between April  2022 and April 2023. In a sense, April 2023 has been a month of extremes. Out of the 8 core sectors, 4 sectors have shown negative growth while 4 sectors have shown strong double digit growth. Hence, the average growth of 3.5% may not be very reflective of the underlying performance of the infrastructure sectors overall. The story has been of extremes; on the positive side and on the negative side.

April 2023 – Growth leaders and the growth laggards

Unlike in recent months, April 2023 saw only 4 out of 8 core sectors in the green with 4 in the red. Core sectors in April either grew in near double-digits or dipped into negative growth. Let us focus on the core sectors that contracted in April 2023. Crude oil output fell by -3.5% while natural gas output also fell by -2.8% in April 2023. Among others, refinery products fell -1.5% while electricity output also fell by -1.4% in April 2023. Clearly, the supply of energy is what bore the brunt of the weakness in the core sector.

Let us look at the leaders. In terms of percentage growth, fertilizers led the way with 25.3% growth after a very positive policy framework and pricing for fertilizers boosted output. Also, the government enabled import substitution in a big way. Among other big positive triggers, steel sector 12.1% growth and cement output grew 11.6%. Both these sectors got a big thrust from a revival in housing demand, but more importantly from a sharp surge in the infrastructure sector. Steel sector also got a boost from robust auto demand. The fourth core sector to grow at a robust pace was coal output at 9.0%. The recent decision to hike coal prices is also going to be a boost to coal output. After all, thermal power demand is also at its peak, and coal supplies need to keep up. 

How did the high frequency data look in April 2023

Till this point, we have been largely focusing on the yoy growth in core sector. While that is the popular benchmark, it is too vulnerable to the base effect. Here we look at the high frequency data as captured by the month-on-month (MOM) core sector growth.

Core Sector Component	Weight	Apr-23 (YOY) %	Apr-23 (MOM) %	FY24 Cumulative (%) *
Coal	10.3335	+9.0%	-32.0%	+9.0%
Crude Oil	8.9833	-3.5%	-2.8%	-3.5%
Natural Gas	6.8768	-2.8%	-7.5%	-2.8%
Refinery Products	28.0376	-1.5%	-8.3%	-1.5%
Fertilizers	2.6276	+23.5%	+0.5%	+23.5%
Steel	17.9166	+12.1%	-7.3%	+12.1%
Cement	5.3720	+11.6%	-3.6%	+11.6%
Electricity	19.8530	-1.4%	+2.0%	-1.4%
Core Sector Growth	100.0000	+3.5%	-8.6%	+3.5%

Data Source: DPIIT (* FY23 is just one month data)

The high frequency data is decisively negative for the core sector. On a MOM basis, the core sector in April 2023 has contracted by -8.6% a clear contrast to the March performance. In April 2023, core sector contracted sequentially in 6 sectors was flat in 1 sector and only electricity generation saw high frequency growth, which can be attributed to robust power demand in the peak summer months. Otherwise, the short term high-frequency core sector growth data is not too encouraging.

Looking back at the core sector over the last decade

Here is how core sector growth has panned out over last decade.

Months	Overall (%)	Coal (%)	Crude Oil (%)	Natural Gas (%)	Refinery (%)	Fertilizers   (%)	Steel  (%)	Cement (%)	Electricity   (%)
2012-13(Apr-Mar)	3.8	3.2	-0.6	-14.4	7.2	-3.3	7.9	7.5	4.0
2013-14(Apr-Mar)	2.6	1.0	-0.2	-12.9	1.4	1.5	7.3	3.7	6.1
2014-15(Apr-Mar)	4.9	8.0	-0.9	-5.3	0.2	1.3	5.1	5.9	14.8
2015-16(Apr-Mar)	3.0	4.8	-1.4	-4.7	4.9	7.0	-1.3	4.6	5.7
2016-17(Apr-Mar)	4.8	3.2	-2.5	-1.0	4.9	0.2	10.7	-1.2	5.8
2017-18(Apr-Mar)	4.3	2.6	-0.9	2.9	4.6	0.03	5.6	6.3	5.3
2018-19(Apr-Mar)	4.4	7.4	-4.1	0.8	3.1	0.3	5.1	13.3	5.2
2019-20(Apr-Mar)	0.4	-0.4	-5.9	-5.6	0.2	2.7	3.4	-0.9	0.9
2020-21(Apr-Mar)	-6.4	-1.9	-5.2	-8.2	-11.2	1.7	-8.7	-10.8	-0.5
2021-22(Apr-Mar)	10.4	8.5	-2.6	19.2	8.9	0.7	16.9	20.8	8.0
2022-23(Apr-Mar)	7.7	14.9	-1.7	1.6	4.8	11.3	8.9	8.7	8.9

Data Source: DPIIT 

The above table has annual data for the last 11 years from FY13 to FY23. Since FY24 is just one month data, we have not included in this analysis. If you leave out the 10.4% growth in core sector in FY22 (largely due to negative base effect), the FY23 core sector growth is extremely impressive and also the best in last 10 years. Above all, this growth comes on the back of a very high base for FY22.

For FY23 the core sector growth has come in at 7.7%; a 10 bps upgrade over the previous month. Unlike the previous year, the FY23 full year core sector growth comes on an elevated base and had put India’s infrastructure well above the pre-pandemic levels. What is noteworthy is that this growth has come even amidst global and domestic headwinds. For now, the robust core sector data for FY23 promises to push GDP to a higher trajectory.