Core sector output falls to five-month low of 2.9% in February

India's core sector growth for February

India’s core sector output fell to a five-month low of 2.9 percent compared with 5.1 percent a month ago, as a high base effect pulled down growth, according to data released by the government on Friday.

"Majority of the sub-sectors witnessed a moderation in growth compared to the previous month. The output growth of coal, crude oil, natural gas and refinery products fell to 1.7% yoy (six-month low), negative 5.2% yoy (sharpest fall since May 2021), negative 6.0% yoy (50-month low) and 0.8% yoy (six-month low) during February 2025, respectively," Paras Jasrai, senior analyst, India Ratings and Research noted.

The core sector has a 40 percent weight in the index of industrial production, which tracks industrial output growth. India’s manufacturing sector performance is likely to be muted this year, after the sector recorded double-digit growth in the previous fiscal.

Coal output declined to a six month low of 1.7 percent and steel production growth also dipped to a five month low of 5.4 percent.

Natural gas and crude oil output slipped further into contraction. Except fertilisers and electricity, which recorded a rise in February from the previous month, six other sectors witnessed a decline in growth.

Although cement growth moderated to 10.5 percent from 14.6 percent, it was still higher than other seven sectors.

GDP data released last month showed that manufacturing would likely grow 4.3 percent in FY25, compared with 12.3 percent in the previous fiscal.

Core sector performance also reflects the slow capex growth in the current fiscal. The centre revised its capex down to Rs 10.2 lakh crore for FY25, as per revised estimates, compared with Rs 11.1 lakh crore in the Budget estimates. But it will have an uphill task even to achieve that mark. India's capex reached 80 percent of the full year target at Rs 8.1 lakh crore in April-February period, leaving the government  Rs 2.1 lakh crore in March 2025.

State spending has also been muted. In the first nine months of the year, capital outlay of states was lower than the previous fiscal.

“During the nine months ended December 31, 2024, the capital outlay of the top 15 states stood at Rs 3.57 lakh crore, reflecting a 4% year-on-year decline due to the impact of elections in the first half of FY25. States have achieved only 48% of the budgeted capital outlay of Rs 7.5 lakh crore during this period, indicating that a significant portion of the capital expenditure needs to be incurred in the fourth quarter, particularly in March 2025,” said CareEdge in a report earlier this week.