India's core sector — the eight infrastructure industries that account for over 40% of the Index of Industrial Production (IIP) — expanded at just 0.5% in May 2026, the slowest pace since last October, according to data released Monday by the government. The tepid reading marks a sharp deceleration from 1.2% in May 2025 and 1.8% in April 2026, and signals headwinds for broader factory output.
Sectoral breakdown: Growth confined to three industries
Only three of the eight core sectors recorded higher output in May. Cement expanded 8.4%, steel production rose 5%, and power generation was 8.7% higher, according to the commerce ministry's Index of Eight Core Industries. In contrast, all five energy-linked sectors contracted:
| Sector | Growth (May 2026) |
|---|---|
| Power | +8.7% |
| Cement | +8.4% |
| Steel | +5.0% |
| Natural gas | -4.9% |
| Crude oil | -4.6% |
| Coal | -9.3% |
| Fertiliser | -0.9% |
| Refinery products | -8.7% |
Coal output fell 9.3%, which Madan Sabnavis, chief economist at Bank of Baroda, attributed to "companies focusing on managing inventory in a more efficient manner and cutting down on production." Crude oil and natural gas production have declined for most months, with only occasional increases. The war in West Asia disrupted oil refining and fertiliser production, contributing to the contraction in those sectors, the report noted.
Expert views: IIP growth likely to weaken
Economists stressed that the core sector slowdown will drag on the broader IIP, which is due later this month. "Core sector growth in May was disappointing… The lower growth number on low base can be attributed more to the decline in production from the petro-based sector," Sabnavis said, adding that IIP was expected to expand 1-1.5% in May. Rahul Agrawal, principal economist at ratings agency ICRA, offered a more cautious outlook: "Given the tepid performance of the core sector in May 2026, IIP growth is likely to weaken to 2-3% in the month from 4.9% in April 2026."
Broader economic context
The West Asia conflict and the likely impact of weak monsoons have prompted several economists and the Reserve Bank of India (RBI) to lower their growth forecasts for the current fiscal year. However, demand for automobiles, white goods and fast-moving consumer goods (FMCG) has so far held firm, reflected in healthy tax collection numbers, the report noted.
Implications for executives and investors
For corporate strategists and equity analysts, the core sector data is a leading indicator of industrial momentum. The prolonged contraction in energy sectors — coal, crude, natural gas, refining and fertiliser — may squeeze margins for downstream industries such as power generation (despite the 8.7% expansion) and petrochemicals. The weakening IIP trajectory could temper earnings expectations for capital goods, metals and logistics companies in the near term. Investors should watch the upcoming IIP release for confirmation of the slowdown, and monitor RBI commentary for any further growth forecast revisions.
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