05

The core sector, consisting of key industries such as petroleum and refining, electricity generation, steel production, coal mining, crude oil, natural gas, cement, and fertilizers, requires comprehensive policy reforms to enhance its contribution to the overall industrial output. The performance of the broader industrial sector, especially supply-side factors, largely depends on the performance of these core industries. This is because the products from the core industries serve as essential inputs for other industries, as well as sectors like services and agriculture.

Key Issues Facing the Core Industries

Petroleum and Refining Industry

The petroleum and refining sector is the largest within the core sector. However, it remains heavily reliant on crude oil imports, with domestic production accounting for only around 15% of the country’s needs. To meet the growing demand for oil, India must increase the number of refineries. Yet, the industry faces challenges such as strict environmental regulations, fluctuating demand for lighter products like gasoline and diesel, and volatility in international oil prices due to geopolitical and other factors. These issues make the sector unstable, and India cannot continue relying on seamless petroleum imports unless significant policy reforms are introduced. Moreover, there is an urgent need for more rational use of petroleum resources.

Electricity Sector

The electricity sector, the second most important sector, continues to focus on increasing thermal power capacity. However, this approach faces significant challenges, especially as India works towards achieving net-zero emissions within a specified timeline and complies with environmental norms earlier than planned. While many countries are ahead in meeting these goals, India also needs more power to meet its economic development targets. Currently, India’s per capita electricity consumption is about one-sixth that of developed countries. Despite this, India is falling short of its thermal power capacity addition targets. According to a report from The Economic Times (28th January 2025), India managed to add only 8 GW of thermal power capacity in FY25, falling short of the 15 GW target. Vikram V, Vice President and Co-Group Head of Corporate Ratings at ICRA, noted that about 30 GW of thermal power capacity is under construction, but many projects are delayed due to execution challenges. India’s energy demand has grown annually by 8.2% in FY22, 9.7% in FY23, and 7.9% in FY24, according to the Central Electricity Authority (CEA).

Steel Sector

India has abundant basic raw materials, including iron ore and coal, and significant domestic demand for steel. Despite this, India lags in global steel production. India’s steel production capacity stands at about 160 MT, significantly lower than China’s, yet domestic consumption is much lower, at 119 MT in FY23, 138 MT in FY24, and 85.71 MT in FY25 (April to October). The steel sector faces pricing challenges, particularly due to the influx of low-priced steel from countries like China. As TV Narendran, CEO and MD of Tata Steel, explained in an interview with The Telegraph (8th November 2024), Indian steel producers will struggle to support significant capacity expansions if domestic steel prices remain at current levels. In September, the steel price dropped to ₹48,000 per tonne, down from ₹62,000 per tonne at the beginning of FY24. The domestic price pressure is driven by Chinese imports at deep discounts, which are squeezing margins. Narendran emphasized that a reasonable price range for steel is $550-$650 per tonne, but Chinese exports have driven it down to $50-$60 per tonne. Jayanta Acharya, CEO of JSW Steel, echoed similar concerns in an interview with The Telegraph (29th January 2025), stating that higher steel exports from China have disrupted global pricing. The influx of cheaper steel from countries like China, Japan, Korea, and Vietnam continues to hamper India’s steel sector growth. In FY24, India imported 8.3 MT of steel, representing 6% of domestic production, with 33% of imports coming from China, 33% from Korea, and 15% from Japan.

Fertilizer Sector

As the eighth-largest industry in terms of weight in the core sector, India is the world’s second-largest consumer of fertilizers. However, the country remains highly dependent on fertilizer imports. To meet domestic demand, India must ramp up domestic fertilizer production. Urea, a nitrogenous fertilizer, is the most widely used in India, followed by phosphorus and potassium fertilizers. The government heavily subsidizes urea, which leads to overuse by farmers. This excessive reliance on urea disrupts the balance between nitrogen, phosphorus, and potassium, degrading soil quality. To address these issues, India needs a well-structured fiscal policy for fertilizers to ensure more balanced usage and to promote sustainable agricultural practices.

Conclusion

To enhance the performance of the core sector and contribute meaningfully to overall industrial growth, India must implement comprehensive policy reforms. These reforms should address critical issues such as resource management, environmental sustainability, and domestic production capabilities. By doing so, India can create a more resilient and vibrant industrial base that supports economic growth and development.