Indian Economy
Contraction in Core Sector Industries
- 01 Aug 2020
- 4 min read
Why in News
The output of eight core industries contracted for the fourth consecutive month - shrinking by 15% in June 2020.
- 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 in Total Output:
- During April-June 2020, the sector's output dipped by 24.6% as compared to a positive growth of 3.4% in the same period previous year.
- However, 15% contraction in June 2020 implies some economic recovery as in May 2020, the industries’ output contracted by 22%.
- Economists expect the negative trend to continue for at least two more months.
- Industry-wise Performance:
- The fertiliser industry is the only one which saw actual growth in June, with output rising 4.2% in comparison to June 2019.
- This, however, is lower than the May 2020 growth of 7.5%, but reflects the positive outlook in the agriculture sector where a normal monsoon is leading to expectations of a good kharif crop.
- Rest seven sectors – coal (-15.5%), crude oil (-6.0), natural gas (-12%), refinery products (-9%), steel (-33.8%), cement (-6.9%), and electricity (-11%) – recorded negative growth in June.
- The steel sector continues to remain the worst performer, with a 33% drop in production in comparison to the previous year.
- The fertiliser industry is the only one which saw actual growth in June, with output rising 4.2% in comparison to June 2019.
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> Electricity> Steel> Coal> Crude Oil> Natural Gas> Cement> Fertilizers.
- 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.
Way Forward
- The positive impact from unlock is not as strong as the negative impact of the lockdown. The government needs to contain the spread of the coronavirus pandemic on a priority to make economic recovery sustainable.
