TWO STORIES: CONSTRUCTION BOOM, BUT FOSSIL FUELS FALTER

TWO STORIES: CONSTRUCTION BOOM, BUT FOSSIL FUELS FALTER

As we look at the April 2026 core sector data, there are 2 distinct positives that emerge. Firstly, the housing and infrastructure related sectors like cement, steel, and electricity have seen a surge in output. They were the positive drivers; with steel and electricity also being major contributors due to their weight in the basket. Secondly, the March 2026 core sector de-growth at -0.44%, was upgraded to growth at 1.20%; an upgrade of 164 basis points.

However, the cap on core sector growth came from fossil fuels, essentially coal, oil, gas, and fertilizers. While fertilizers output contracted by -8.6% in April due to supply chain constraints, the contraction was lower than March. Also, natural gas which had shown a surprising expansion in output in March, slipped back into contraction mode. Despite the robust demand for power, coal output got hit badly due to shutdowns.

MONTH-WISE CORE SECTOR GROWTH – LAST ONE YEAR

The table captures breakdown of the 1.65% yoy core sector growth for April 2026 across 8 infrastructure baskets. Previous data points have been revised, appropriately.

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

There are some interesting trends visible in the hydrocarbons space. Most of the problems that we are seeing in this space, are not due to the ongoing war. For instance, output contraction in coal, crude, and natural gas is more due to domestic factors. Refinery products should have been impacted by the difficulty in sourcing crude, but here the contraction has been under 50 bps. Refiners are still able to secure crude through alternate routes. Fertilizers is, perhaps, one space where the domestic output is being genuinely impacted by the geopolitical strife. For India, the problems are clearly more structural.

ANNUAL CORE SECTOR NUMBERS: MARGINAL IMPROVEMENT IN FY26

Core sector is reported on a monthly and annual basis. For FY26, the cumulative core sector growth was upgraded from 2.61% to 2.73%; still the lowest in last 5 years.

How does 2.73% FY26 core sector growth compare with the last 10 years? If you look at the 10 years prior to FY26, the average core sector growth was 4.06%. If the exceptional de-growth of COVID year FY21 was eliminated, then the average of the remaining period was 5.22%. Either way, the 2.73% in FY26 is starkly lower than previous annual averages.

CORE SECTOR OUTPUT – WHAT IS THE BIG PICTURE?

Here are some key takeaways from the core sector data for April 2026.

There has been much talk about the US-Iran war impacting the core sector output in India. However, the impact of war has been prominent only in fertilizers output.

In most of the other cases where fossil fuels have contracted, the problems stem from domestic structural issues and the challenges in rapidly scaling up output.

The impact on refinery products has been limited despite the blockade of Straits of Hormuz. That is due to inventory stocking and alternate sources of crude supplies.

Core sector output at an annual level has been falling, and that is a matter of concern. After all, core sector is 40.27% of IIP and hence strongly impacts nominal GDP too.

The government has been spending heavily on capex, directly and via transfer to states. It is time for the government to ensure that such capex results in genuine increase in core sector output too. After all, these are the building blocks of long-term growth.