The core sector of the Indian economy comprising eight infrastructure industries has been contracting continuously since March 2020. Undoubtedly, the disruptions due to the pandemic have taken their toll on almost all industries. However, the depth of the contraction and its persistence bode ill for the prospects of economic recovery in the near future. Industries like steel, cement, natural gas and refinery products have sunk to alarming levels. Within the core sector, growth in only coal, fertilizers and electricity has been just about positive. In March 2020, the sector had shrunk by 8.6 per cent. Next month, it fell to negative 37.9 per cent. In September 2020, it had recovered to a negative 0.1 per cent, but fell again in November 2020 to negative 2.6 per cent. During the period between April and November 2020, the cumulative growth rate of the core sector was a negative 11.4 per cent. It may be noted that the eight industries mentioned constitute 40.27 per cent in terms of weight in the index of industrial production.

Apart from being important in total size, the core sector is significant in another way: it supports general manufacturing by producing universal intermediaries. Coal, cement and steel, for instance, are required in so many different productive activities. If the economy is down in terms of demand, the derived demand for these goods would be low too, leading to excess capacity and contraction in production. On the other hand, if the economy is growing fast, the derived demand will be brisk, leading to rapid growth in this sector. The continuous contraction in the core sector is clearly indicative of the poor demand conditions for manufactured goods and services. The demand for consumer goods being low implies that capacity building will also be low. Hence the demand for new plant and machinery will be poor as well. This situation is also indicative of the fact that easy and cheap credit available for industrial units, as has been the policy stance of the Government of India in providing a stimulus for economic recovery from the effects of the pandemic, is not working. Production is simply refusing to grow. It will not pick up as long as final demand is sluggish. The point is to get more purchasing power in the hands of the poor and the lower middle class. Hopefully, the finance minister will address this vital issue in the forthcoming Union budget.