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Core Sectors Bounce Back 🏭

CHART OF THE WEEK 📈

The output of Eight Core Infrastructure Sectors grew 7.9% in September 2022, as against 5.4% in September 2021 year on year. This is a welcome change following the slowdown in the last two months

What is the Index of Eight Core Industries?

  • The Index of Eight Core Industries is an aggregate of 8 core sectors that are fundamental to the Indian economy

  • These are Coal, Crude oil, Natural gas, Refinery products, Fertilizers, Steel, Cement and Electricity

  • These 8 sectors constituting the core sector are important because they account for nearly 40% of the overall Index of Industrial Production (IIP), and are indicative of the health of the economy

Bouncing Back

  • The core sectors had been seeing a broad-based slowdown for the last three months

  • However, there has been a rebound in key infrastructure sectors, which is expected to boost industrial growth, after last month’s 0.8% contraction

  • Output increased across the sectors of cement (12%), coal (12%), fertilisers (12%), electricity (11%), steel (7%), and refining products (7%)

  • A decline was seen in crude oil (-2%), and natural gas (-2%)

Reasons

The bounce-back can be attributed to:

  1. Higher capital expenditure by the government

  2. Increase in overall economic activity

Good News Can Be Bad News

While the growth in core sectors, industrial output and the overall economy sound like good news, the underlying context may not really put that bright a picture. Why?

  • The RBI has been increasing rates, but there’s still growth in economic activity. This simply means things aren't cooling down enough

  • Beating inflation and robust growth don't go hand in hand, and efforts to tame inflation may need more efforts

  • With inflation still high, the West going heavy on rate hikes, and a weak INR, the RBI gets more headroom to cut rates if the underlying economy is still strong

Continued aggression on rate hikes then? Perhaps!

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