Contraction in August Core Industry Output: IIP

• 01 Oct 2020

Why in News

India’s eight core industrial sectors contracted by 8.5% in August 2020 compared to August 2019, marking the sixth month in a row of shrinking output.

• The eight core sector industries are coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity.
• These eight industries account for 40.27% in the Index of Industrial Production (IIP).

Key Points

• Contraction:
  
  • The cumulative growth of Core Industries during April to August, 2020-21 has been (-) 17.8%.
  • Except for coal and fertilisers, production continued to decline in most core sectors in August.
    
    • Coal production increased 3.6% on-year in August after four months of contraction, due to improvement in offtake level.
      
      • An offtake agreement is an arrangement between a producer and a buyer to purchase or sell portions of the producer's upcoming goods.
  • The steepest decline in August was observed in refinery products, which dropped 19.1%. This was followed by cement, and natural gas.
• Reason: The drop in August is due to factors like:
  
  • Low demand in the economy.
  • Unavailability of equipment for setting up newer production platforms.
  • Seasonal and lockdown restrictions.

Index of Industrial Production

• The Index of Industrial Production (IIP) is an index that shows the growth rates in different industry groups of the economy in a fixed period of time.
• It is compiled and published monthly by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation.
• IIP is a composite indicator that measures the growth rate of industry groups classified under:
  
  • Broad sectors, namely, Mining, Manufacturing, and Electricity.
  • Use-based sectors, namely Basic Goods, Capital Goods, and Intermediate Goods.
• The eight core sector industries represent about 40% of the weight of items that are included in the IIP.
  • The eight core industries in decreasing order of their weightage: Refinery Products (28.04 %)> Electricity (19.85 %)> Steel (17.92 %) > Coal (10.33 %)> Crude Oil (8.98 %)> Natural Gas (6.88 %)> Cement (5.37 %)> Fertilizers (2.63 %).
• Base Year for IIP calculation is 2011-2012.
• Significance of IIP:
  
  • IIP is the measure on the physical volume of production.
  • It is used by government agencies including the Ministry of Finance, the Reserve Bank of India, etc, for policy-making purposes.
  • IIP remains extremely relevant for the calculation of the quarterly and advance Gross Domestic Product (GDP) estimates.

Source: PIB