Core sector rises 1.7% in June, but industrial weakness persists

By: Shantanu Bhattacharji

Infrastructure sector output rose 1.7% in June, a modest uptick from May’s 1.2%, but well below the 5% growth recorded in June last year. The increase reflects uneven momentum across key industries, with gains in steel, cement, and refinery products partially offset by declines in other sectors.

India’s key infrastructure industries recorded modest growth in June, offering a mixed signal on the health of the economy. According to government data released on July 21, the output of the eight core sectors rose 1.7 per cent year-on-year—marking a three-month high. The uptick was largely driven by government-led capital spending, which gave a boost to sectors such as steel, cement, and oil refining. 

But behind the headline number lies a more uneven picture. While three sectors performed strongly, the remaining five registered declines, underscoring persistent challenges across the country’ industrial landscape. 

What’s driving the growth? 

The headline 1.7 per cent rise in core sector output is a slight improvement from May’s 1.2 per cent, but it still trails far behind the 5 per cent growth seen in June last year. Economists attribute the latest performance to government capital expenditure that has helped lift construction activity. 

Steel production jumped 9.3 per cent in June—its fastest pace in seven months—while cement output rose 9.2 per cent. Both industries benefit directly from the government’s continued investment in roads, housing, and public infrastructure. Output of petroleum refinery products also rose 3.4 per cent, marking a five-month high. 

“This kind of growth in steel and cement suggests that the construction sector may have had a strong quarter,” said Aditi Nayar, chief economist at ICRA. “That could translate into healthy gross value added (GVA) numbers when the official figures are released in August.” 

Trouble spots: Energy and mining slump 

While the gains in construction-related sectors were encouraging, the story wasn’t as upbeat elsewhere. Coal production declined 6.8 per cent, hit by an unfavourable base effect and seasonal factors. Electricity generation and natural gas output both fell by 2.8 per cent, while crude oil and fertiliser production slipped 1.2 per cent. 

Excessive rainfall during the second half of June disrupted mining and electricity operations. Analysts say these weather-related impacts, combined with a high base from last year, dragged overall growth lower. 

“While steel and cement are doing well, other sectors have lost momentum. Monsoon disruptions and slowing demand have taken a toll,” said Paras Jasrai, associate director at India Ratings and Research. 

The bigger picture 

The eight core industries—coal, crude oil, natural gas, refinery products, fertilisers, steel, cement, and electricity—collectively make up over 40 per cent of India’s Index of Industrial Production (IIP), a key measure of factory output. That makes this data an early indicator of how broader industrial activity is shaping up. 

The average growth for the April–June quarter in the core sector was just 1.3 per cent, sharply down from 6.2 per cent in the same period last year. That suggests that India’s industrial recovery may be losing steam, even as headline GDP numbers remain relatively strong. 

Economists expect this sluggish trend to reflect in the IIP data as well. India Ratings projects IIP to rise around 1.5 per cent in July, while ICRA expects it to be in the 1.5 per cent–2.5 per cent range. 

“The weak performance of the core sector in Q1FY26 is likely to have a dampening effect on overall industrial output,” said Nayar. 

What to expect going forward 

Looking ahead, analysts see room for a mild pickup in core sector growth in July—possibly around 2 per cent—thanks to continued infrastructure spending and a normalization of monsoon disruptions. But broader risks remain. 

Demand from export markets remains patchy, global commodity prices are volatile, and domestic consumption is uneven. At the same time, inflationary pressures and geopolitical uncertainties—especially rising oil prices due to the Israel–Iran conflict—could increase input costs for core industries. 

Still, India’s economic fundamentals remain resilient, and the government’s focus on capital spending may provide some buffer. But for a durable industrial rebound, more consistent growth across all sectors will be necessary.