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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.

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.

Source:TH

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