Core sector growth conceals weakness in key industries: India’s core sector output grew 7.9% in September 2026, its fastest pace under the new series, but the headline figure conceals persistent weakness in crude oil, natural gas and fertiliser production. All three industries contracted year-on-year in each of the first six months of FY27, raising concerns about India’s dependence on imported energy and agricultural inputs. The divergence reflects a wider problem with industrial expansion. India is producing more steel, cement and electricity to support infrastructure development, while domestic supplies of some essential inputs are struggling to keep pace with demand.
According to the Ministry of Commerce and Industry, the Index of Core Industries, with a revised base year of 2022-23, rose 7.9% in September, compared with 5.9% in August. Iron ore production increased 18.4%, electricity 11.4%, coal 10.7% and cement 9.8%. In contrast, fertiliser output fell 11.7%, natural gas 4.6% and crude oil 1.4%.
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The weakness extends beyond September. During April-September, crude oil production declined 3.7%, natural gas 4.4% and fertilisers 7.6%. These contractions occurred even as overall core sector growth accelerated to 5.1%, against 2.5% in the corresponding period last year.
The latest figures call for a closer examination of India’s industrial capacity. Higher cement and steel production indicates continuing construction and investment activity. However, neither can compensate for inadequate domestic energy supplies. Weak fertiliser production can increase import dependence and expose agriculture to international price movements. The implications differ across industries, but all three have a bearing on the country’s ability to sustain growth without accumulating external vulnerabilities.
Crude oil production continues to decline
India’s difficulty in expanding domestic crude oil production illustrates the limits of its industrial growth. Despite government efforts to encourage exploration and production, domestic output declined from 29.7 million tonnes in 2021-22 to 28 million tonnes in 2025-26. Over the same period, dependence on imported crude rose from 85.5% to 88.7%, according to figures submitted to Parliament.
The decline reflects problems that cannot be resolved through policy incentives alone. India’s major producing oilfields are ageing, and output from mature reservoirs is falling. Exploration carries considerable geological and commercial risks, particularly offshore, where projects require large investments and long development periods.
The government’s Open Acreage Licensing Policy has sought to attract investment by allowing companies greater flexibility in selecting exploration blocks. Yet new discoveries cannot be assumed, and commercially viable reserves can take years to develop. Better recovery from existing fields and faster development of viable discoveries may offer more immediate gains.
India has also built substantial refining capacity, enabling it to process imported crude for domestic consumption and export. This has made petroleum refining an important industrial activity, but it has done little to reduce dependence on foreign crude supplies.
Refining capacity and energy security therefore need to be assessed separately. A country can expand petroleum product exports while remaining vulnerable to higher international oil prices, geopolitical disruptions and rising freight costs.
An increase in crude prices raises India’s import bill and can put pressure on the rupee. It can also add to inflation, depending on how international prices are transmitted to domestic consumers. Government intervention to moderate fuel prices may create fiscal costs or reduce the revenues of oil companies.
These vulnerabilities cannot be eliminated through domestic exploration, given India’s resource constraints. The more practical objective is to improve production where commercially feasible while reducing the economy’s exposure to imported oil through efficiency, electrification and a diversified energy mix.
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Natural gas supply falls behind demand
Natural gas presents a related problem, with consequences extending beyond energy supply. It is used in industry, city gas distribution and power generation, while also serving as a principal feedstock for manufacturing urea. Inadequate domestic gas production can therefore increase costs for fertiliser manufacturers as well as industrial consumers.
India’s domestic natural gas production grew at a compound annual rate of only 0.98% between 2014 and 2023, compared with 6.13% growth in net imports, according to PRS Legislative Research. The disparity illustrates how domestic production has failed to keep pace with expanding requirements.
Imported liquefied natural gas helps bridge the gap, but global prices and shipping costs can make it expensive for price-sensitive Indian consumers. Power producers and fertiliser manufacturers also face different pricing arrangements and policy constraints, complicating the allocation of available supplies.
Increasing gas production would help, although exploration remains uncertain and new projects require substantial capital. Pipeline infrastructure and access to competitively priced LNG are equally important. Without adequate distribution networks, even additional domestic or imported gas cannot necessarily reach consumers where demand exists.
There is also a longer-term question about the role of natural gas in India’s energy system. The fuel may support the transition away from more carbon-intensive energy sources in some applications, but expensive new infrastructure risks becoming underutilised if electrification and renewable energy expand faster than anticipated.
India therefore needs realistic assessments of future gas demand before committing to large investments in production and transport infrastructure. Commercial viability, import diversification and the pace of the energy transition should guide these decisions.
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Fertiliser imports expose agriculture to global prices
Weak domestic fertiliser production has a more direct bearing on agricultural costs and public finances. Imports can bridge production gaps, but greater reliance on overseas supplies leaves India exposed to changes in global prices, export restrictions and transport disruptions.
India’s fertiliser production has failed to match consumption growth over a prolonged period. Between 2001-02 and 2024-25, domestic production of nitrogen, phosphorus and potassium (NPK) fertilisers grew by an annual average of just 0.1%, compared with consumption growth of 2.8% and import growth of 5.2%.
In 2024-25, domestic NPK fertiliser production stood at 148 lakh tonnes against a requirement of 329 lakh tonnes, according to PRS Legislative Research. India also relies on imports to meet around 89% of its potassic fertiliser requirements.
The supply gap reflects both inadequate domestic capacity and limited availability of raw materials. India has no significant commercially exploitable potash reserves and insufficient phosphate resources to meet domestic requirements. Expanding fertiliser manufacturing would therefore reduce dependence on finished-product imports in some categories, but would not eliminate the need to import raw materials.
Fertiliser pricing adds another complication. India’s subsidy regime keeps fertilisers affordable, but the relatively low controlled price of urea has encouraged its excessive use compared with other nutrients. Such imbalances can impair soil health and reduce the efficiency of fertiliser consumption.
The Union Budget for 2026-27 allocated approximately ₹1.71 lakh crore for urea and nutrient-based fertiliser subsidies. The expenditure protects farmers against high input costs, particularly when international prices rise. It also creates a substantial recurring commitment for the government.
The policy response must recognise the limits of domestic production. More efficient fertiliser use, balanced nutrient pricing and better soil management could reduce demand pressures, while investments in viable manufacturing capacity would improve supply security.
Any substantial reform of urea pricing would also require safeguards for farmers, particularly smallholders who depend on subsidised inputs. Abrupt reductions in support could increase cultivation costs without producing an immediate improvement in nutrient use.
The fiscal question deserves attention as well. Persistent subsidy commitments can constrain the government’s ability to increase spending on agricultural research, irrigation and other investments that could raise farm productivity over time.
Industrial growth requires reliable essential supplies
The contrasting performance of India’s core industries argues against treating aggregate output growth as a sufficient measure of industrial strength. The economy can sustain rapid construction and infrastructure expansion while becoming more dependent on imports of fuels and agricultural inputs.
There are limits to how far domestic production can resolve these dependencies. India cannot readily overcome its geological constraints in oil, gas or fertiliser minerals. Nor would producing every essential input at home necessarily be economical. Imports may remain the cheaper and more reliable option in several cases.
The government therefore needs different responses for each industry. Oil and gas policy should prioritise commercially viable production, efficient consumption and diversified import arrangements. Fertiliser policy must address domestic capacity and raw-material security alongside pricing distortions that encourage excessive nutrient use.
India’s infrastructure expansion will be more secure if essential inputs remain available at predictable costs. The September figures suggest that improvements in industrial output have yet to deliver that assurance. The policy priority should be to reduce vulnerability where domestic production cannot keep pace with consumption, rather than pursue self-sufficiency irrespective of cost.