CORE INDUSTRIES OUTPUT FALL

CORE INDUSTRIES OUTPUT FALL

Subject: Economics

Context : The output of eight core industries grew 56.1 per cent year-on-year (YoY) in April 2021 on a low-base effect as industrial production was very low in the year-ago month because of a nationwide lockdown.

Concept:

• However, the industrial output declined 15.1 per cent as compared to March 2021 due to the emergence of second wave of COVID-19 pandemic, with all eight industries registering a decline in output.
• The combined ICI stood at 126.7 in April 2021, which increased by 56.1 per cent (provisional) as compared to the Index of April 2020. This high growth rate in April 2021 is largely due to low Index base in April 2020 consequent to the low industrial production across all sectors caused by nationwide lockdown imposed to contain spread of Covid-19 last year.
• The growth rate of ICI during April-March 2020-21was (-)6.5% (P) as compared to the corresponding period of last FY.

Base Effect

• The base effect refers to the impact of the rise in price level (i.e. last year’s inflation) in the previous year over the corresponding rise in price levels in the current year (i.e., current inflation)
• If the price index had risen at a high rate in the corresponding period of the previous year leading to a high inflation rate, some of the potential rise is already factored in, therefore a similar absolute increase in the Price index in the current year will lead to a relatively lower inflation rates.
• If inflation in June 2016 was 8% and absolute increase in Price index in June 2017 was say 9%, then, inflation in June 2017 will be low i.e. 1%
• On the other hand, if the inflation rate was too low in the corresponding period of the previous year, even a relatively smaller rise in the Price Index will arithmetically give a high rate of current inflation.
• If inflation in June 2016 was 1% and absolute increase in Price index in June 2017 was say 4%, then, inflation in June 2017 will be low i.e. 3%.

Core Industries

• Core industry can be defined as the main industry which has a multiplier effect on the economy.
• In most countries, there is particular industry that seems to be backbone of all other industries and it qualifies to be the core industry.
• 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. The eight Core Industries in decreasing order of their weightage: Refinery Products> Electricity> Steel> Coal> Crude Oil> Natural Gas> Cement> Fertilizers.