Headline : Core sector output falls 1st time in 4 yrs
- The eight core sectors reported their worst decline in at least eight years, shrinking 5.8% in October.
- The fall is the sharpest since the start of the new data series using 2011-12 as the base year.
About: Index of Industrial Production (IIP)
- Index of Industrial Production (IIP) shows the performance of different industrial sectors of the Indian economy.
- The IIP is estimated and published on a monthly basis by the Central Statistical Organisation (CSO) of the Ministry of Statistics and Programme Implementation..
- The base year for the current series of IIP is 2011-12.
- It is published monthly with a time lag of six weeks from the reference month.
- As an all India index, it gives general level of industrial activity in the economy. It is a short term indicator of industrial growth till the results from Annual Survey of Industries (ASI) and National Accounts Statistics (Example: GDP) are available.
Importance of Index of Industrial Production:
- The IIP is used by public agencies including the Government agencies/ departments including that in the Ministry of Finance, the Reserve Bank of India etc. for policy purposes.
- The all-India IIP data is used for estimation of Gross Value Added (GVA) of Manufacturing sector on quarterly basis.
- Similarly, the data is also used extensively by analysts, financial intermediaries and private companies for various purposes.
- It is crucial considering the IIP is the only measure on the physical volume of production.
About: Core Industries
- The core sector is an aggregate of 8 core sectors that are fundamental to the Indian economy.
- These are Electricity, Steel, Refinery products, Crude oil, Coal, Cement, Natural gas and Fertilisers.
- These 8 sectors constituting the core sector are important because they account for nearly 40.27% of the overall IIP and hence have long term repercussions for corporate profit growth as well as for the overall GDP growth.
- The growth of the country’s eight core sectors is a lead indicator of the monthly industrial performance.
Core sectors and their weights in their 40.27% contribution to the calculation of IIP
- According to recent data released by the Commerce and Industry Ministry, the core sectors saw a second straight month of contraction.
- The slump in the eight core sectors in October to 5.8% was even worse than September, when the index saw a 5.2% decline.
- According to data shared by the Commerce Ministry, overall growth has been hit by declining production in most core sectors, especially a steep drop in electricity production.
- Only two industries — fertiliser and refinery products — in positive terrain.
- Negative Growth Sectors (November 2019 data):
- Electricity: – 4 per cent
- Coal: – 17.6 per cent
- Crude oil: -5.1 per cent
- Natural gas: -5.7 per cent
- Cement: -7.7 per cent
- Steel: -1.6 per cent
- Positive Growth Sectors (August 2019 data):
- Refinery Products: 0.4 per cent
- Fertilizer: 11.8 per cent
What it signifies:
- These sectors are lead indicators for performance of the industrial sector.
- Contraction in these sectors of the economy in October reflects the broader slowdown facing the Indian economy.
- The weakness in these industry groups is expected to adversely impact the index of industrial production (IIP) since the core sector has an over 40% weight in IIP calculation.
- The decline witnessed in electricity is mainly due to lower power demand in major industrial states.
- A part of the reason for the decline in the core sector index may have been disruption caused by rains as also fewer working days due to the festival season.