Core Sector Contracted by 9.6% | 01 Sep 2020

Why in News

The output of eight core infrastructure sectors dropped by 9.6% in July 2020. It has been a continued contraction for the past five months.

Key Points

  • Reasons: The contraction is due to a decline mostly in the production of steel, refinery products, and cement.
    • In general, the weak demand and over-supply along with global and domestic disruptions due to Covid-19 are hampering the mobilization of economic resources.
    • In July, local demand growth has slowed because of high fuel prices, renewed lockdown in parts of the country, and as monsoon rains hit transport, industrial and construction activity.
  • Scenario:
    • The production of eight core sectors had expanded by 2.6% in July 2019.
    • Barring Fertiliser (grew by 6.9%), all seven sectors — coal, crude oil, natural gas, refinery products, steel, cement and electricity — recorded negative growth in July.
    • The output of steel saw the highest decline (16.5%). It was followed by refinery products (13.9%).
    • The minimum contraction in the output is in the electricity sector with 2.3%.

Core Sector Industries

  • The eight core sector industries include coal, crude oil, natural gas, refinery products, fertiliser, steel, cement, and electricity.
  • These comprise 40.27% of the weight of items included in the Index of Industrial Production (IIP).
  • The eight core Industries in decreasing order of their weightage: Refinery Products> Electricity> Steel> Coal> Crude Oil> Natural Gas> Cement> Fertilizers.
Industry Weight (In percentage)
Petroleum & Refinery production 28.04
Electricity generation 19.85
Steel production 17.92
Coal production 10.33
Crude Oil production 8.98
Natural Gas production 6.88
Cement production 5.37
Fertilizers production 2.63

Index of Industrial Production

  • The Index of Industrial Production (IIP) is an indicator that measures the changes in the volume of production of industrial products during a given period.
  • 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.
  • Base Year for IIP is 2011-2012.
  • Significance of IIP:
    • 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 GDP estimates.

Source IE