core-sector-output-shrinks-in-june

Context: The index of eight core industries dropped 15 per cent in June compared to a 22 per cent decline in May. It had declined 37 per cent in April. This is the fourth consecutive month of contraction in the core sector. 

The eight industries in the IIP index are coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity. These together have a 40 per cent weight in the Index of Industrial Production (IIP).

Key takeaways from IIP (June):

  • The core sector contracted by 15%, against 22% in May.
  • Fertilizers (4.2%) remained the only sector to record positive growth due to the ample rainfall and a brisk start to kharif sowing in June.
  • Steel is the worst performing sector: Construction activity has resumed at a faster pace in rural areas relative to urban areas, and that production of consumer durables continues to lag.
  • Cement (-6.9%), refinery products (-8.9%) and steel (-33.8%) recording an improvement from the previous month
  • Electricity (-11%), natural gas (-12%) and crude oil (-6%) displayed negligible rise.
    • Electricity production remaining negative reflects low industrial activity as commercial demand has been low due to the massive adoption of work-from-home practices, and only partly running of factories. 
    • Low crude oil prices and low demand for fuel also kept production and imports low.

Fiscal deficit may rise: Data separately released by the Controller General of Accounts (CGA) showed the Centre exhausted 83.2% of fiscal deficit in the first quarter (April-June) of FY21 against 61.4% during the same period a year ago.

  • Due to the fiscal support announced under the “Aatmanirbhar Bharat Abhiyan" Centre’s fiscal deficit may surge to ₹13 trillion in FY21 from the budgeted level of ₹8 trillion.

Significance: The International Monetary Fund (IMF) said all these factors signal falling economic activity in India as the positive impact from unlock is not as strong as the negative impact of the lockdown. 

  • It urged the government to urgently contain the spread of the coronavirus pandemic on a priority to make economic recovery sustainable.

In last few weeks, government officials have signalled that the announcement of a new fiscal stimulus package is only a matter of time. 

Index of Industrial Production

About

  • IIP is an index that shows the growth of the manufacturing industry in different sectors of the economy.
    • The IIP reviews the industrial production for the period of a month.

Base Year

  • The base year for IIP is 2011-2012.

Constituents

  • The constituents of IIP fall in three broad sectors , i.e. Mining, manufacturing, and electricity.
 

Sector

Number of Item Groups

Weight (%)

Mining

1

14.373

Manufacturing

405

77.633

Electricity

1

7.994

 
  • The Eight Core Industries comprise 40.27 percent of the weight of items included in the Index of Industrial Production (IIP).

Compiling Agency

  • It is compiled and published by the Central Statistical Organization (CSO), which falls under the purview of the Ministry of Statistics and Programme Implementation.
 

Utility of IIP Data

  • The IIP data is used by the Ministry of Finance, the Reserve Bank of India (RBI), private firms and analysts, for the purpose of analysis.
    • It also finds utility in compilation of Gross Value Added (GVA) of the manufacturing sector in the Gross Domestic Product (GDP).
Source: Economic Times