Context: Factory output contracted by a record 16.7 per cent in March as the impact of the nationwide lockdown to counter the COVID-19 pandemic reflected in sharp contraction of manufacturing, capital goods, consumer durables and consumer non-durables output.
More about the news:
- For the full financial year 2019-20, the Index of Industrial Production (IIP) recorded a contraction of 0.7 per cent as against 3.8 per cent growth in the previous year.
- The data is likely to be revised due to lower response rate from the units from which data is collected, the National Statistical Office said.
Salient features of the data:
- Manufacturing sector output contracted 20.6 per cent compared to a growth of 3.1 per cent in the same month a year ago.
- Electricity generation declined by 6.8 percent as against a growth of 2.2 per cent in March 2019.
- Mining sector output remained flat compared to a growth of 0.8 per cent earlier.
- Production of capital goods, an indicator of investment, declined by 35.6 per cent as against a contraction of 9.1 per cent in the same month last year.
- As per use-based classification, primary goods registered a contraction of 3.1 per cent, intermediate goods (-)18.5 per cent and infrastructure/construction goods (-)23.8 per cent this March over the same period last year.
- The consumer durables output fell 33.1 per cent, while non-durables production slipped 16.2 per cent in March.
Category of Goods
- Primary products are goods that are available from cultivating raw materials without a manufacturing process. Significant primary product industries include agriculture, fishing, mining, and forestry.
- Capital goods are goods used by one business to help another business produce consumer goods.Capital goods include items like buildings, machinery, and tools.
- Consumer goods are used by consumers and have no future productive use. Examples of consumer goods include food, appliances, clothing, and automobiles.
- An intermediate good is a product used to produce a final good or finished product—also referred to as a consumer good.
- Intermediate goods—like salt—can also be finished products, since it is consumed directly by consumers and used by producers to manufacture other food products.J
- Reasons behind the fall in IIP: It is due to a
- Pause in investment intentions
- Deferral of non-essential consumption
- Mismatches in labour availability
- The possibility of supply chain disruptions
- GDP predictions: ICRA projects Indian GDP to contract in a range of 16-20 per cent in Q1FY2021, which would translate to a contraction of 1.0-2.0 percent in FY2021.
- Silver lining: Economists expect the healthy rabi crop and a pickup in government expenditure to provide some cushion to economic activity in Q1 FY2021.
Index of Industrial Production
- 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.
- The base year for IIP is 2011-2012.
- The constituents of IIP fall in three broad sectors , i.e. Mining, manufacturing, and electricity.
Number of Item Groups
- The Eight Core Industries comprise 40.27 percent of the weight of items included in the Index of Industrial Production (IIP).
- 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).