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
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%)
The bounce-back can be attributed to:
Higher capital expenditure by the government
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!