India’s core sector growth slows to 0.5% in May as energy segments weigh on industrial output

India's core sector growth slowed sharply to 0.5 percent in May 2026, highlighting persistent weakness in the energy-related industries despite robust expansion in steel, cement and electricity generation, showed the data compiled by the Ministry of Commerce & Industry. The latest data further reported that five of the eight core industries contracted during the month, offsetting gains from infrastructure-linked sectors and underscoring the uneven nature of industrial recovery.

The combined Index of Eight Core Industries (ICI), which accounts for 40.27 percent of the weight of the Index of Industrial Production (IIP), rose by just 0.5 percent in May compared with the same month last year. The growth rate was lower than market expectations and reflected the impact of declining output in coal, crude oil, natural gas, refinery products and fertilizers. The final growth rate for April 2026 was revised to 1.8 percent, while the cumulative growth during April-May of the current fiscal stood at 1.1 percent.

Economists attributed the subdued performance primarily to weakness in the petroleum and energy segments, which carry a substantial weight in the core industries index. "Core sector growth in May was disappointing at 0.5 percent compared with 1.2 percent in the corresponding period last year. The lower growth number despite a relatively favourable base can largely be attributed to the decline in production from the petroleum-based sectors," said Madan Sabnavis, Chief Economist, Bank of Baroda.

Worse performers
Among the worst-performing segments, petroleum refinery products, which carry the highest weight of 28.04 percent in the index, registered an 8.7 percent decline in production during May. Crude oil production fell by 4.6 percent while natural gas output declined by 4.9 percent.

According to analysts, softer international crude oil prices and higher imports reduced the need for increased domestic production. Refinery output was also affected by weaker export demand for petroleum products, while domestic natural gas production moderated as supply chain constraints eased and imported supplies became more readily available.

Sector-wise performance
The coal sector, which has been one of the strongest contributors to industrial growth in recent years, also witnessed a sharp reversal. Coal production contracted by 9.3 percent during May, with cumulative output declining by 9.1 percent in the first two months of the fiscal year. Industry observers said coal companies have increasingly focused on inventory optimisation and stock management after maintaining high production levels over the past two years. Improved coal availability at power plants has reduced the urgency for aggressive output expansion.

Fertilizer production also remained under pressure, declining by 0.9 percent during the month. Analysts linked the contraction to challenges in securing adequate natural gas supplies, a key feedstock for fertilizer manufacturing, even as imports helped bridge part of the domestic demand-supply gap.

Infrastructure-centric industries
In contrast, infrastructure-linked industries continued to provide support to the broader industrial economy. Steel production rose by 5 percent year-on-year in May, while cement output expanded by a strong 8.4 percent. During April-May, steel production increased by 5.2 percent and cement production by 8.3 percent. The sustained growth in both sectors reflects ongoing momentum in infrastructure development and construction activity across the country. Government spending on roads, railways and urban infrastructure, coupled with steady demand from the housing sector, has continued to support consumption of steel and cement.

The steel industry, in particular, has benefited from robust domestic demand amid large-scale public infrastructure projects and private sector investments. Cement manufacturers have similarly reported healthy dispatches driven by construction activity and a pick-up in real estate development. Electricity generation emerged as the strongest-performing component of the core sector, registering an 8.7 percent increase in May. The growth was driven by exceptionally high power demand during the summer season as large parts of the country experienced intense heatwave conditions.

Utilities demand up
Higher consumption from residential users, increased air-conditioning demand and rising commercial activity contributed to the surge in electricity generation. Renewable energy sources also played an increasingly important role in meeting peak demand, complementing conventional power generation. Analysts noted that the strong expansion in electricity generation prevented a sharper slowdown in the overall core sector index.

The mixed performance across sectors suggests that while domestic infrastructure and construction activities remain resilient, energy-related industries continue to face structural and market-driven challenges. The divergence also highlights the growing importance of public capital expenditure in sustaining industrial growth amid global economic uncertainties.

Outlook
Looking ahead, economists expect the weak core sector performance to be reflected in the broader industrial production data for May. Sabnavis estimated that the Index of Industrial Production is likely to record growth of around 1 to 1.5 percent for the month, indicating continued moderation in manufacturing and industrial activity.

The coming months will be closely watched for signs of recovery in the petroleum and mining sectors, which remain critical to sustaining overall industrial growth. A rebound in global energy demand, improvement in export markets and stronger domestic production trends could help support the core sector, while continued infrastructure spending is expected to remain the principal driver of growth in steel, cement and electricity.

DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com