March 2023 core sector growth nearly halves to 3.6%

29 Apr 2023 , 11:59 AM

Incidentally, this also marked the last month of FY23, so we have full financial year figures for FY23 for the core infrastructure sectors. The core sector (also called infrastructure sector) is a collection of 8 basic building blocks of the economy and 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. Significantly, core sector basket accounts for 40.27% of overall IIP basket, and is an important lead indicator of manufacturing GDP. Within the core sector basket, refinery products, electricity and steel have the highest weightage.

Core sector data is yoy data, so some impact of the base effect is inevitable. For instance, in October 2022, the core sector growth had dipped below 1%, but has since recovered. For March 2023, the core sector growth halved to 3.6%, despite a low base growth of 4.8% in March 2022. Let us look at the revisions. The first revision for February 2023 raised core sector growth by 120 bps from 6.0% to 7.2%. The final revision for December 2022 pegged core sector growth 130 bps higher from 7.00% to 8.30%. Clearly, the revisions have been decisively positive and that bodes well for the core sector growth of March 2023 too.

Months	Overall (%)	Coal (%)	Crude Oil (%)	Natural Gas (%)	Refinery (%)	Fertilizers   (%)	Steel  (%)	Cement (%)	Electricity   (%)
Mar-22	4.8	0.3	-3.4	7.6	6.1	15.3	4.1	9.0	6.1
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	8.9	13.4	-1.1	5.3	4.5	17.9	10.8	4.6	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	2.8	1.5	9.7	8.8	-0.8	-1.8

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 March 2022 and March 2023. The 3 major drivers of IIP growth in March 2023 are coal production at 12.2%, fertilizers at 9.7% and steel at 8.8%. While steel has been a beneficiary of housing and auto demand, the coal sector output surged in response to rising demand from the thermal power sector. In terms of laggards, crude oil output continued to be under pressure amid low prices, but electricity and cement also showed negative growth.

March 2023 – Growth leaders and the growth laggards

Unlike in recent months, March 2023 saw only 5 out of 8 core sectors in the green with 3 in the red. In March 2023, it was once again the crude oil segment that saw steeply negative growth at -2.8%. However, the power sector also saw negative growth of -1.8% while the cement sector also struggled with negative growth of -0.8%.

Let us look at the leaders. In terms of percentage growth. Coal output at 12.2% led the way as the government had called for peak output to serve the thermal power plants in the summer months. Fertilizers also reported solid 9.7% output growth on the back of a more favourable fertilizer regulatory policy of the government as well as hopes that the El Nino would not disrupt the Kharif output this year. Steel saw a surge in output at 8.8% as export demand was back and domestic demand from construction and auto sector also peaked.

There were also output gains on natural gas and refinery products on the back of more favourable gas pricing and higher gross refining margins. However, the growth was not very impressive and was below the core sector basket average. On the downside, while crude pressure is understandable due to ageing wells, the cement sector also saw lower output ahead of the monsoon season. Power companies saw some pressure on up-time and PLF.

A quick look at the high frequency data for March 2023

Till this point, we have been largely focusing on the yoy growth in core sector. While that is the popular benchmark, it is still 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	Mar-23 (YOY) %	Mar-23 (MOM) %	FY23 Cumulative (%) *
Coal	10.3335	+12.2%	+25.0%	+14.8%
Crude Oil	8.9833	-2.8%	+13.5%	-1.7%
Natural Gas	6.8768	+2.8%	+11.3%	+1.6%
Refinery Products	28.0376	+1.5%	+12.1%	+4.8%
Fertilizers	2.6276	+9.7%	-5.7%	+11.3%
Steel	17.9166	+8.8%	+7.8%	+8.6%
Cement	5.3720	-0.8%	+9.5%	+8.6%
Electricity	19.8530	-1.8%	+7.8%	+8.9%
Core Sector Growth	100.0000	+3.6%	+11.3%	+7.6%

Data Source: DPIIT (* FY23 is full fiscal from April 2022 to March 2023)

The high frequency data is decisively positive for the core sector. On a MOM basis, the core sector has expanded by +11.3%. In February, the MOM core sector growth had contracted after 3 consecutive months of MOM expansion. So, the month of March effectively puts the positive high frequency trend back in place. This could be an outcome of the very strong  growth triggers in the Indian economy and reflects high levels of business confidence too.

How did core sector fare in the last 10 years

Here is how core sector growth has panned out over last 10 years.

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)	7.6	14.8	-1.7	1.6	4.8	11.3	8.6	8.6	8.9

Data Source: DPIIT 

The above table has annual data for the last 11 years from FY13 to FY23, now that we have full fiscal year data for the latest year also. If you leave out the 10.4% growth in core sector in FY22 (largely due to negative base effect), the current year core sector growth is extremely impressive and also the best in last 10 years. More so, considering the relatively strong base of FY22. The government thrust to infrastructure at policy level was the key.

For FY23 the core sector growth has come in at 7.6%, although there is the chance of this being revised higher once the final data comes in. Unlike the previous year, the FY23 full year core sector growth comes on an elevated basis and had put India’s infrastructure well above the pre-pandemic levels. What is noteworthy is that this growth has come despite headwinds like central bank hawkishness, runaway inflation, recession concerns, banking turmoil and supply chain constraints. One can expect more upward revisions in GDP and IIP in the coming months.