Summary
The Index of Eight Core Industries (ICI) is a key economic indicator in India that tracks the combined production output of eight vital sectors: coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, and electricity. Together, these sectors constitute approximately 40.27% of the country’s Index of Industrial Production (IIP), making the ICI an essential gauge of industrial health and economic momentum in India. Historically, these core industries have been central to India’s industrialization strategy since the 1950s, underpinning growth in heavy industry and infrastructure development.
In early 2025, the ICI experienced a significant downturn, plummeting to 0.7%, its lowest level in nine months. This decline reflects uneven sectoral performance, with notable contractions in crude oil and natural gas production, as well as a sharp 9.5% drop in fertilizer output—the steepest since mid-2021—amid supply chain pressures and fluctuating input costs. While sectors such as cement and electricity showed resilience, the overall slowdown highlights ongoing challenges in industrial production, including logistics constraints, elevated production costs, and subdued demand linked to reduced public infrastructure spending.
The decline in the core industries index has had wider economic implications, contributing to volatility in stock markets and weakening investor confidence during 2025. This downturn also underscores structural challenges in India’s industrial sector, which continues to grapple with the lingering effects of global disruptions, geopolitical tensions affecting raw material supplies, and a complex domestic policy environment balancing liberalization with industrial protection. Despite these headwinds, input cost stabilization and adaptive supply chain measures offer some prospects for gradual recovery.
Looking ahead, forecasts anticipate that the core industries index may continue to face downward pressure in 2025 before stabilizing in 2026, supported by robust domestic demand and government infrastructure initiatives. Long-term growth drivers such as urbanization, demographic trends, and policy reforms aimed at improving manufacturing and energy sectors provide a foundation for potential rebound, though challenges including foreign competition and technological modernization remain.
Overview of the Core Industries Index
The Index of Eight Core Industries (ICI) is a vital economic indicator in India that measures the combined and individual production performance of eight key sectors of the economy. These sectors include coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, and power, which are considered the backbone of industrial activity due to their strong influence on overall economic performance and other industrial sectors.
The ICI is a composite indicator that reflects the production volume and growth trends in these core industries, representing about 40.27% of the total weight of items included in the broader Index of Industrial Production (IIP). The IIP itself is a significant resource that provides monthly data on industrial output across various sectors and is compiled by the Central Statistical Organization (CSO) under the Ministry of Commerce and Industry.
Among the eight core industries, refinery products hold the highest weightage at 28.04%, followed by electricity at 19.85%, steel at 17.92%, coal at 10.33%, crude oil at 8.98%, natural gas at 6.88%, cement at 5.37%, and fertilizers at 2.63%. These weightages are largely aligned with their respective contributions within the overall IIP and are updated periodically to reflect changing economic conditions, with the latest base year revision shifting from 2004-05 to 2011-12.
The significance of these core industries stems from their role in driving economic growth through the production of basic and heavy industrial goods, a strategy historically emphasized by the Indian government since the 1950s through centrally planned five-year plans focused on rapid industrialization and the development of large state-owned enterprises. The output and growth patterns of these industries are closely monitored by policymakers, analysts, and investors as they provide crucial insights into the health and trajectory of the Indian economy.
Historical Context and Trends
The performance of India’s core industries has historically been influenced by both domestic economic policies and global events. In the late 1980s and early 1990s, India faced significant economic challenges marked by a severe balance of payments crisis. Factors such as the Gulf War-induced oil price spike, heavy external borrowing, and capital outflows triggered by the Volcker shock contributed to the crisis, culminating in dwindling foreign exchange reserves and mounting fiscal deficits. Despite these difficulties, industrialization during this period achieved moderate success, with public enterprises producing key industrial goods like steel and chemicals, albeit after delays and cost overruns.
More recently, the Index of Eight Core Industries (ICI) has shown fluctuations reflecting broader economic and geopolitical influences. For instance, fertilizer production experienced a sharp decline of 9.5% in February 2024, marking the steepest drop since May 2021, even as the overall core sector exhibited robust cumulative growth of 7.7% for the fiscal year 2023-24. This contrasts with the global fertilizer market’s resilience following the disruptions caused by the Russian invasion of Ukraine, where fertilizer prices initially peaked but then declined due to cheaper raw materials and continued exports from Russia and Belarus despite sanctions.
The industrial production landscape has also been shaped by sector-specific trends. Crude oil production contracted by 1.9% in March 2024, with a cumulative decline of 2.2% for the fiscal year, while natural gas production experienced a sharper fall of 12.7%, reflecting supply and demand dynamics. Conversely, the cement industry has been a standout performer, growing by 11.6% in March 2025 and supporting ongoing infrastructure development efforts with a cumulative annual growth of 6.3%. Coal production, a critical component of the ICI constituting over 40% of the Index of Industrial Production (IIP), saw significant declines in recent years, including a 17.6% drop in October compared to the previous year.
Recent Performance and Decline
The recent performance of India’s core industries index has exhibited a notable decline, reaching its lowest level in nine months. The index, which measures the combined output of eight critical sectors—coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, and electricity—has faced mixed trends in production across these sectors.
In early 2025, production data revealed that while some sectors such as cement, refinery products, coal, steel, fertilizers, and electricity remained in positive territory, others experienced contractions. For instance, coal production increased by 4.6% in January 2025 compared to the previous year, contributing to a 6.0% cumulative growth from April 2024 to January 2025. Conversely, crude oil output declined by 1.1% in January 2025 relative to January 2024, with a cumulative drop of 2.0% over the same period. Natural gas production also decreased by 1.5% in January 2025 year-over-year, signaling some underlying weakness in energy sectors.
Infrastructure and industrial growth faced headwinds due to these sectoral imbalances, leading to the core industries index’s decline to a nine-month low. Earlier periods had shown promising growth; for example, cumulative growth between April and July 2021-22 was recorded at 21.2%, with monthly improvements in core sector production exceeding 5% during certain months. However, the recent slowdown reflects broader economic uncertainties and sector-specific challenges impacting production and supply chains.
Causes of the Recent Decline
The recent decline in the core industries index to 0.7%, the lowest in nine months, can be attributed to multiple interrelated factors affecting both supply and demand dynamics across key sectors. One primary cause has been the sustained contraction in production levels of critical components such as crude oil and natural gas. Crude oil production fell by 1.9% compared to March 2024, while natural gas experienced a sharper contraction of 12.7% in the same period, contributing significantly to the overall decline in the core sectors’ output. The slowdown in natural gas production is especially impactful given its role as a key input in various industries, including fertilizers.
Supply chain disruptions that emerged during the COVID-19 pandemic continued to exert pressure on the industries, particularly reflected in the fertilizer sector. Fertilizer prices spiked dramatically in 2021–2022 due to these disruptions and elevated coal prices in China, which led to electricity rationing and production cuts at fertilizer plants. Furthermore, China imposed export quotas on fertilizers to ensure domestic availability and food security, severely diminishing global fertilizer supply and thus affecting production costs and availability elsewhere. Although fertilizer prices have since declined significantly, aided by stabilizing input costs such as natural gas and raw materials, they remain above pre-pandemic levels, keeping affordability challenges relevant.
Another contributing factor is the dampened state spending on public works and infrastructure, which has slowed the growth of these core industries. The modest 0.5% growth in the combined Index of Eight Core Industries (ICI) in April 2025 is indicative of this slowdown, reflecting subdued demand for inputs like steel, cement, and electricity that are essential for infrastructure projects. While some sectors such as cement showed robust growth of 11.6% in March 2025, this has not been sufficient to offset declines in other sectors.
Logistics and raw material constraints also play a role in the decline. For example, high logistics costs in India—estimated to be substantially higher than international benchmarks—add to production expenses, limiting competitiveness and expansion capacity. Additionally, while India possesses abundant reserves of iron ore and coal, it lacks significant coking coal reserves, creating supply bottlenecks for steel production.
Finally, broader economic trends, such as the ongoing decline in the U.S. Leading Economic Index (LEI) by 2.0% over consecutive six-month periods, signal a weakening economic environment that may be impacting industrial demand globally. The deterioration in most components of the LEI reflects subdued business cycles and investment returns, which are likely to affect the core industries as well.
Impact of the Decline
The recent plummet of the Core Industries Index to 0.7%, marking its lowest point in nine months, has had significant ramifications across various economic sectors. The index, which reflects the performance of eight critical industries accounting for over 40% of the Index of Industrial Production (IIP), showed a cumulative growth rate of only 4.4% during the fiscal year 2024-25, signaling a considerable slowdown compared to previous years. This deceleration has contributed to subdued industrial output, which in turn has lagged behind the overall growth of the Gross Domestic Product (GDP), highlighting structural challenges in industrial growth post-economic reforms.
The decline in the index has exacerbated concerns about investor confidence and economic stability. Following this downturn, major stock market indices in India experienced pronounced volatility and downturns, with the NSE Mid-cap index falling by 13.58%, the NSE Nifty Next 50 dropping by 20.99%, and the small-cap index tumbling by 12.80% during the 2025 crash period. This widespread sell-off across large, medium, and small capital companies reflected growing investor panic amid fears of a global economic slowdown and persistent high-interest rates signaled by the U.S. Federal Reserve. Furthermore, the depreciation of the Indian rupee during this period underscored the pressure on the external sector and added to the economic uncertainty.
On the supply side, while input costs for key production sectors such as fertilizer have decreased significantly from their 2022-23 peaks, they remain elevated relative to pre-2020 levels, contributing to ongoing cost pressures for industries. Nevertheless, this stabilization of input prices and the moderate rise in global consumption during the first half of 2024 suggest potential for recovery if demand conditions improve. The adjustment in global supply chains, including diversification of natural gas sources and establishment of new production facilities, has helped mitigate some of the adverse effects caused by earlier disruptions.
Responses to the Slowdown
The recent slowdown in the growth of the core industries, which constitute a significant portion of the industrial production, has elicited varied responses from policymakers and economic analysts. The output of the eight core infrastructure sectors, accounting for 40% of the country’s industrial production, registered a growth of only 0.5% in April 2025, marking the lowest expansion in the last eight months and a sharp decline from the 4.6% growth seen in March 2025. This deceleration has raised concerns about the broader industrial health and economic momentum.
To address these challenges, several measures have been considered. The government continues to monitor the performance of the core industries closely, given their substantial weight—27% in the overall Index of Industrial Production (IIP)—and their critical role in signaling economic conditions. Efforts to stabilize and boost industrial output involve managing input costs, which have seen fluctuations recently, especially in natural gas and fertilizer prices. Notably, fertilizer input costs have declined significantly from their peaks in 2022-23, which has supported moderate growth in global consumption during early 2024 despite the prior sharp contraction.
Economic strategies are also shaped by historical precedents of industrial development. For example, India’s rapid industrialization strategy in the 1950s focused on creating large state-owned enterprises producing basic and heavy industrial goods, laying a foundation for subsequent industrial growth despite initial cost overruns and delays. In the current context, balancing liberalization efforts with the protection of vital industries remains a key consideration, as liberalization has previously led to concerns about foreign influence over critical sectors.
Moreover, economic indicators such as the Conference Board Lagging Economic Index® for the US reflect broader global industrial trends, showing only modest growth and a potential decline before stabilization in 2026. These trends underscore the interconnectedness of domestic industrial performance with global demand, export restrictions, and input cost dynamics.
Future Outlook
The Index of Eight Core Industries (ICI) is projected to experience a further decline in 2025 before stabilizing in 2026. Despite this anticipated drop, the index is expected to remain above the levels recorded during 2015–19, primarily due to robust domestic demand and export restrictions, particularly imposed by China. This outlook is subject to several upside risks, including potential increases in input costs, especially for natural gas. Conversely, a resumption of China’s exports could exert downward pressure on prices, potentially easing the index’s decline. Notably, fertilizer input costs have seen a significant reduction, which may positively influence the sector’s performance.
The cumulative growth rate for the core sectors during the fiscal year 2024-25 (April to March) was 4.4 percent compared to the previous year, reflecting a moderate recovery despite challenges such as a slowdown in state spending on public works. The production in April 2025 saw a provisional increase of 0.5 percent compared to April 2024, indicating tentative growth amidst a complex economic environment. These eight sectors—coal, crude oil, natural gas, petroleum refinery products, fertilizers, steel, cement, and electricity—constitute over 40 percent of the Index of Industrial Production (IIP) and are crucial indicators of India’s industrial and economic health.
Long-term economic drivers remain positive for India’s core industries, supported by factors such as the demographic dividend, increasing urbanization, rising wealth, and a robust regulatory ecosystem. Additionally, government initiatives aimed at infrastructure development, supply chain diversification in manufacturing, sustainable pro-industry policies, and the expansion of renewable energy capacity are expected to underpin future growth. However, challenges including foreign competition, historical technological lag in sectors like mining and metal-working, and concerns about liberalization impacts continue to influence the sector’s trajectory.
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