Core concerns: On the Indian economy, the road ahead

The slowdown in the growth of India’s core industrial sectors in July was not surprising, with other indicators predicting easing demand conditions as well. Growth in the index of core industries (ICI) slowed to 5.4% in July from 6% in the previous month. This was in keeping with the Manufacturing Purchasing Managers’ Index, which in July eased to its lowest level since August 2021 due to weak domestic demand conditions. While July’s growth in the ICI was the second-highest growth rate in the last seven months, the data nevertheless highlight some concerning aspects of the Indian economy. The first has to do with the fact that a large part of even this slower growth seems to be based on a statistical low base effect. The coal sector, for example, grew at an 11-month high of 7.6% in July, but this was based on a contraction of 12.3% in July of last year. Similarly, the refinery products sector snapped a three-month streak of contraction to grow at 2.7%, but this too was based on a contraction in July 2025. The iron ore sector, however, grew at a very robust 29.5%, albeit slower than a blistering 44.5% in June. This seems heartening regardless of the contractions of 16.4% and 7.1% in June and July of last year, respectively. But the steel sector slowed drastically in July to 2.9% from 5.6% in June and 15.7% in July of last year.

The domestic crude oil and natural gas sectors have been lasting drags on the economy. Both have contracted continuously for at least the last 14 months for which the new series of the ICI has data. India’s crude oil imports rose 13.3% in volume terms in July, while Liquefied Natural Gas (LNG) imports grew a more marginal 1.5%, showing that the economy’s appetite is being whetted from abroad. This external dependence is proving very expensive. High oil prices have meant that the crude oil import bill jumped 41% in July. The 100% tariffs that the United States is preparing to levy on countries such as India that import Russian oil will once again burden Indian exporters. Moving to 20% ethanol-blending has not yet impacted oil imports materially. Within the ICI, the only two bright spots of the economy were the cement and electricity sectors. The electricity sector grew at a robust 9% in July, although this was slower than the two consecutive months of double-digit growth in May and June thanks to the prevalent heatwave conditions in many parts of the country. The cement sector sped up to 13.1%, a welcome acceleration. Such positive trends were few and far between. Overall, the Indian economy looks to be in for a period of slack demand, higher costs, and moderating growth.