Core sector output growth slows down to 4.3% in March on high base effect

Core sector output growth slows down to 4.3% in March on high base effect

Subject: Economy

Section: National Income

Context:

Output growth of the eight core industries output slowed in March 2022 to 4.3 per cent,largely due a high base effect of 12.6 per cent in the same month last year. The latest growth was also lower than 6 percent in February 2022.

Concept:

The six core industries that saw positive growth rate in Marchare natural gas (7.6%); refinery products (6.2%); fertilisers (15.3%); steel (3.7%); cement (8.8%); and electricity (4.9%).Only coal and crude oil saw contraction at 0.1% and 3.4%,respectively.

• The eight core industries included are- Coal, Crude oil, Natural Gas, Petroleum refinery products, Fertilizer, Cement, Steel, and Electricity generation.
• These eight industries comprise 40.27% of the weight of the items included in the Index of Industrial Production.
• These industries have a major impact on general economic activities and also industrial activities. They significantly impact most other industries as well. The core sector represents the capital base of the economy

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.
• 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.