Core sector output at 6-month low; crude, natural gas hit most

Core sector output at 6-month low; crude, natural gas hit most

Subject: Economy

Section: National income

Context: Growth in the output of eight core infrastructure sectors decelerated sharply for a second straight month to hit a six-month low of 4.5 percent in July from a year ago, as a conducive base effect waned considerably. The growth was as much as 13.2 per cent in June and 19.3 per cent, a 13-month peak, in May. This may weigh down the growth of the index of industrial production (IIP) in July from 6.7 per cent in June, given that the core industries makeup for 40.3 per cent of the IIP.

Core Industry:

• 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.

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 Central Statistical Organization (CSO), Ministry of Statistics and Programme Implementation.
• IIP is a composite indicator that measures the growth rate of industry groups classified under:
  • Broad sectors: Mining, Manufacturing, and Electricity.
  • Use-based sectors: 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:

• IIP is the only 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 GDP estimates.