Contraction in Core Sector Industries | 01 Aug 2020

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).

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.

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.

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.