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Indian Economy

Core Sector Shrinks by 6.5%

  • 01 May 2020
  • 4 min read

Why in News

According to the data released by the Ministry of Commerce and Industry, the eight core sector industries contracted by 6.5% in March, 2020.

  • The cumulative growth of eight core sector industries during 2019-20 was 0.6%.
  • In February, 2020, the eight core sector industries recorded a growth of 5.5%.

Key Points

  • Seven out of eight core sectors contracted in the month of March.
    • The contraction was led by steel production, electricity, cement production, natural gas production, fertiliser production, crude oil production and petroleum & refinery production.
    • Coal was the only core sector which saw growth.
  • The contraction in the core sector has occurred despite the fact that several of the core sector industries were given exemptions under the lockdown. E.g electricity and steel which are continuous processes and were not stopped.
  • However, the movement of goods faced major restrictions due the nationwide lockdown, resulting in reduced demand which led to reduced production.
  • The March core sector data also reflected the cut in capital expenditure by both state and central governments in order to make up for falling tax revenues.
    • The capital expenditure is defined as the money spent on the acquisition of assets like land, buildings, machinery, equipment, as well as investment in shares.
    • High capital expenditure usually means more investment by the government towards the creation of infrastructure and other assets that are crucial for rapid economic growth.

Core Sector Industries

  • The eight core sector industries include coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity
  • The eight core industries 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.
  • The eight core industries of India represent about 40% of the weight of items that are included in the IIP.
  • 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: TH

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