Mint Explainer | Slowing core sectors to reverse overall industrial growth trend of Q2

The eight core sectors—coal, crude oil, natural gas, refinery products, fertilizers, steel, cement and electricity—form the backbone of India’s industrial economy and weigh nearly 40% of the Index of Industrial Production (IIP).

In September, output shrank in half of these sectors, coal, crude oil, natural gas, and refinery products, reflecting weaker energy production and refining activity. Fertilizers, cement and electricity managed modest gains, though at a slower pace than before.

Steel alone defied the trend, expanding strongly year-on-year and underscoring resilient demand from construction and infrastructure projects.

Mint examines how the slowdown in India’s core sectors could ripple through the broader economy.

How a slowdown in India’s core infrastructure sectors impacts overall GDP growth?

The implications extend well beyond the monthly numbers. A slowdown in the core sectors tends to have an impact across the economy as lower coal and power output can strain manufacturing, subdued refinery activity points to easing energy demand, and weaker cement and fertilizer production may signal a cooling in construction.

Reduced output in these sectors curtails input supply to downstream sectors, dampens investment sentiment, and slows public infrastructure execution. The knock-on effects often reach employment, freight movement and revenues, ultimately softening the broader economic pulse.

Which core sectors are most critical in India’s industrial health and economic performance?

Among the eight core sectors, electricity, steel, and refinery products are the most critical in shaping India’s industrial output and overall economic performance. Electricity, which alone accounts for about a fifth of the IIP, is a fundamental input for industry and households alike with any fluctuation directly affecting productivity.

Steel with its deep linkages to construction, infrastructure, automobiles, and capital goods is a key barometer of investment and economic expansion. Refinery products, with the highest weightage of about 28% of the IIP, influence both industrial and transport costs, feeding into inflation and the trade balance. Coal and cement play pivotal supporting roles; coal fuels power generation and heavy industries, while cement mirrors trends in housing and infrastructure spending.

Does the strong performance in steel mitigate the broader slowdown?

Yes, but only to a limited extent. Steel’s robust output comes primarily from construction and infrastructure activity creating a positive spillover for related industries such as cement, capital goods, and logistics. However, if key inputs like coal, crude oil, natural gas, or electricity weaken, the overall industrial ecosystem faces cost pressures and supply constraints that can offset these gains.

In essence, strength in one or two sectors may soften the impact of a slowdown, but sustained industrial and GDP growth ultimately depends on broad-based momentum across the entire core sector spectrum.

How do core sector fluctuations shape investment, manufacturing, and export trends?

Fluctuations in core sectors have a roll-on influence on India’s investment climate, manufacturing momentum, and export performance. When sectors such as steel, electricity, and refinery products expand, they lower input costs, boost industrial capacity, and signal strong demand—encouraging both private and public investment.

But when energy and raw material segments like coal, crude oil, and natural gas falter, production costs rise and supply chains tighten ending up in eroded manufacturing competitiveness. Since core industries feed directly into key export categories, such as refined petroleum, steel and chemicals, their performance has an impact on trade dynamics as well.

What does the slowdown in the eight core sectors in September signal for the upcoming IIP data?

Economists expect overall industrial growth measured by IIP to moderate in September on back of the slowdown in core sectors— reversing a months-long growth trend.

The year-on-year growth in IIP has shown a steady improvement in the last quarter: rising from 1.5% in June to 3.5% in July and further to 4% in August. This is expected to slow down in September, however.

Rating agency ICRA Ltd projects growth in the IIP to halve to around 2% in September from 4% in August. “The core sector growth remained volatile in September 2025, dipping to a three-month low of 3%, dampened by a contraction in half its constituents. The continued double-digit expansion in steel prevented an even more tepid performance," said Aditi Nayar, ICRA's chief economist. “Overall, mining and quarrying, and electricity GVA (gross value added) growth is likely to be weak in Q2 FY26," she added.

Data and analytics provider Dun & Bradstreet, meanwhile, expects IIP growth to have eased to 3.8% in September 2025, citing persistent weakness in manufacturing and non-durable consumer goods output, alongside the first full-month impact of US tariffs on Indian exports.