Canary in coal mine, Pg8

Key Highlights:

• India's Index of Core Industries recorded a series-high growth of 7.9% in September 2026, marking the second consecutive month of accelerated performance.
• The coal sector saw a sudden surge of 10.7% in September, attributed to a statistical low base and high demand from power plants during a heatwave.
• The electricity sector demonstrated robust growth of 11.4% in September, contributing to double-digit growth over the preceding half-year.
• Crude oil and natural gas sectors have continuously contracted since 2024, while refinery output rose to 10.3% in September, indicating increased processing of expensive imported oil.
• India's oil imports in September increased by 7% in volume but jumped 47% in value due to high global oil prices, which exceeded $112 a barrel following attacks on Saudi Arabia's energy infrastructure.
• The country's Foreign Exchange Reserves are being utilized to defend the rupee amidst rising import costs and shrinking fiscal space.
• Only the cement and steel sectors show sustainable growth, primarily driven by government infrastructure spending.

Index of Core Industries.jpg

Detailed Insights:

• The unexpected growth in the coal sector in September is likely a temporary phenomenon, as the sector had contracted by 1.1% over April-September 2026.
• The surge in electricity demand for coal is expected to moderate due to the El Niño factor, which is projected to result in a milder winter.
• While the steel sector accelerated in September, its growth was insufficient to sustain the coal sector's output levels.
• The uptick in steel production positively impacted the iron ore sector, leading to a return to double-digit growth, which is favorable for the mining component of the Index of Industrial Production.
• The continuous contraction in crude oil and natural gas production highlights India's increasing reliance on imported oil for its refineries.
• High global oil prices, exacerbated by geopolitical events like attacks on Saudi Arabia's energy infrastructure, are significantly impacting India's import bill.
• Despite a reprieve from potential U.S. tariffs on Russian oil, India is now facing premium pricing for crude, further straining its Foreign Exchange Reserves.
• The government's fiscal capacity is diminishing as industrial output is temporarily bolstered, and sustainable growth is limited to sectors reliant on public spending.

Key Concepts Involved:

• Index of Core Industries (ICI): A monthly production volume index measuring the performance of eight core infrastructure industries (Coal, Crude Oil, Natural Gas, Petroleum Refinery Products, Fertilizers, Steel, Cement, and Electricity) in India.
• El Niño: A climate pattern characterized by unusually warm sea-surface temperatures in the central and eastern equatorial Pacific Ocean, often leading to warmer winters and altered rainfall patterns in India.
• Foreign Exchange Reserves: External assets held by a country's central bank in foreign currencies and other internationally accepted reserve assets, used to manage external stability, balance of payments, and rupee volatility.
• Index of Industrial Production (IIP): A composite indicator that measures the short-term changes in the volume of production of a basket of industrial products, with the core industries having a significant weight in its calculation.