Core sector growth hits seven-month low of 0.5% in May as coal, petroleum contract

The growth of India's eight core sectors slowed to a seven-month low of 0.5% in May 2026 due to contraction in the coal and petroleum sectors amid disruptions caused by the crisis in West Asia. This is the slowest growth rate since the 0.1% contraction in October 2025. In May last year, these major producing sectors of the economy grew by 1.2%.

Coal output contracted 9.3% in May, marking a 10-month low, while petroleum refinery products saw a contraction of 8.7% year-on-year. Crude oil production, natural gas production and fertilizers also contracted by 4.6%, 4.9% and 0.9% respectively, according to provisional data from the union ministry of commerce and industry.

However, the steel, cement and power sectors witnessed growth last month, which helped keep the overall growth rate positive. Steel production increased 5% compared to May last year, while cement output rose 8.4% and electricity generation witnessed 8.7% growth amid high power demand.

Madan Sabnavis, chief economist at Bank of Baroda, said, "Core sector growth in May was disappointing at 0.5% compared with 1.2% last year. The lower growth number on a low base can be attributed more to the decline in production from the petro based sector. Crude oil, natural gas and refinery products all registered decline in production.

He added, “This can be attributed more to higher import of crude and softening of prices in the international market. In the case of natural gas, with supply chains being addressed, domestic production tended to fall. Lower exports of petro products also contributed to decline in production.” Steel and cement continued to grow at a steady rate mainly due to higher infra-activity in the areas of roads and housing besides railways, he said.

Rahul Agrawal, principal economist, ICRA Ltd, noted that given the tepid performance of the core sector in May 2026, Index of Industrial Production (IIP) growth is likely to weaken to 2-3% in the month from 4.9% in April 2026. The slowdown seems to be a medium-term impact of the war in West Asia. The growth in these eight sectors in April was 1.8%.

The war in West Asia has had a significant impact on the global economy and that of India. However, the memorandum of understanding and recent talks between Iran and the US are expected to bring long-term peace and ease the energy supply chain.

A week ago, the World Bank raised India's FY27 growth forecast to 6.6% from 6.5% in January, citing resilient domestic demand, reduced US tariffs, and the expected benefits of new free trade agreements, which could partly offset headwinds arising from the West Asia conflict. Economic analysts at Citigroup also raised India’s FY27 growth estimates by 30 basis points from 6.6% to 6.9%, an analyst note showed. The RBI had revised India’s growth rate estimates downward from 6.9% to 6.6% in its recently concluded June monetary policy review.

Rituraj Baruah is a special correspondent covering energy, housing, urban affairs, heavy industries and small businesses at Mint. He has reported on diverse sectors over the last eight years including, commodities and stocks market, insolvency and real estate; with previous stints at Cogencis Information Services, Indo-Asian News Service (IANS) and Inc42.

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