India's core sector output contracted 0.4% in March after expanding 2.8% in February, according to government data released on Monday. As reported by The Times of India, this was the worst performance in 19 months for the sectors, marking a significant deterioration in industrial activity. The decline was primarily attributed to the West Asia conflict, which disrupted global energy supplies and contributed to the challenging operating environment for key industrial sectors during the final months of FY26. The March contraction was led by significant declines in fertiliser production, crude oil, and coal output, with the data released by the Ministry of Commerce and Industry on April 20, 2026.
The March decline was particularly pronounced in specific sectors, with fertiliser output contracting 24.6%, crude oil production dropping 5.7% for the seventh consecutive month, and coal output falling 4.0%, the first decline in five months. Electricity generation also edged lower by 0.5% during the month. However, some sectors showed positive growth, with natural gas output rising 6.4%, steel production increasing 2.2%, and cement output growing 4.0%. Refinery products output remained largely flat, rising just 0.1%. According to The Times of India, fertiliser plants went for early maintenance shutdowns due to gas shortage following the blockade of the Strait of Hormuz, the key gateway for Indian energy supplies. The steel sector saw growth slump to an 18-month low of 2.2% in March 2026, while the cement sector slowed to a 17-month low of 4%.
India faces an additional threat from El Niño conditions during the South West monsoon season, with the India Meteorological Department forecasting seasonal rainfall at around 92% of the Long Period Average. According to SBI Research, this forecast is the lowest since 2002, representing a significant deterioration from normal monsoon patterns. Economists warn that a weaker monsoon will add to the woes caused by higher crude oil prices and fertilizer supply disruptions. Yuvika Singhal from QuantEco explains that a shortfall in rainfall over August-September could materially weigh on crop production quality and quantity, potentially leading to upside in food prices in the second half of FY27, especially for perishables, pulses, and oilseeds. Sachchidanand Shukla from Larsen & Toubro notes that commodities most likely to see sharpest price rises from El Niño are food-linked crops among domestic ones and cocoa, coffee, sugar, and palm oil among global ones.
For the full financial year 2025-26, core sector growth slowed to 2.6%, according to provisional data released by the commerce and industry ministry. On a cumulative basis, steel and cement were the main drivers of growth during the fiscal year, expanding 9.1% and 8.6%, respectively. However, crude oil and natural gas output remained under pressure throughout the period. As reported by The Times of India, the eight core sectors constitute 40.3% of the Index of Industrial Production (IIP), which measures output in the country's industrial sector. The data indicates that while parts of the economy continue to hold up, underlying growth remains uneven despite moderate expansion, with IIP growth expected to slow to 1-2% given current trends.
The combination of Middle East conflict and El Niño conditions poses significant risks to India's economic outlook. SBI Research estimates that El Niño alone is likely to have a negligible impact on India's GDP growth, but El Niño plus drought conditions could bring down GDP by around 20 bps in the median estimate and around 65 bps in the extreme scenario. Ranen Banerjee from PwC India warns that if a full El Niño effect materializes, the IMD has forecasted 8-10% shortfall in monsoon rains from the long-term average. Yuvika Singhal forecasts FY27 CPI inflation at 4.5% and India GDP growth at 6.6%, assuming an average crude oil price of $85 per barrel and below-normal monsoon conditions. Despite these challenges, SBI Research maintains confidence that India will continue to demonstrate resilience with GDP likely to grow in the range of around 6.8%-7.1%, citing strong domestic consumption, infrastructure investment, and robust services sector as key growth drivers.
