march-core-sector-output-slumps-65

Context: As per the data of the Commerce Ministry, output at India’s core sector contracted by 6.5% in March that comes as the sharpest contraction in the index since the new series began in 2012.

More on the news

  • The index of eight core sector industries reflected a contraction in key parts of the economy in March owing to COVID-19 pandemic and the subsequent lockdown.
    • The steel output led to a decline of 13 %, followed by the Electricity with a 7?ll.
      • The two sectors account for almost 40% of the index. 
    • Cement production crashed 25%, while natural gas production slid 15%.
    • Fertiliser production also fell 12%, while crude oil production slipped 5.5%.
    • Coal was the only core sector which saw some growth, with output up 4%. 
    • Refinery production dipped by 0.5%.
  • It came in as a warning that the core sector data signalled a much sharper contraction in the wider Index of Industrial Production (IIP), especially in April, since several core sector industries were exempted from the lockdown.
    • Electricity and steel are continuous processes and have not been stopped. 
    • But movement of goods faced major restrictions, so it might be possible that they reduced production.

Significance

  • The contraction in steel and electricity production reflect the underlying stress in the economy, most crucially on the demand side.
    •  Given that all non-essential industries and commercial establishments are shut as part of the lockdown, demand for electricity declined by more than 9% in March, as per data of National Load Despatch Centre. 
    • While the power sector has been included in the list of essential services, the slump in demand from commercial customers created a cascading impact.
    • Power sector, especially Discoms, are already reeling under heightened cash flow problems on account of various losses and debts.
  • The core sector data for the month of March also reflected the cut in capital expenditure by both state and central governments in order to make up for falling tax revenues.
  • This trend is going to continue because both government and private demand for infrastructure investment has collapsed.
    • Further, a revival in the core sector is unlikely until the government starts spending on infrastructure.

Early signs for the next month

  • These trends are expected to worsen slightly but within the same magnitude.
    • These are based on a premise that demand has fallen drastically in the power sector due to the full lockdown this month, and gas powered plants were likely to have been shut down. 
    • Coal may also dip for the next month , while cement production will fall sharply as all construction activity came to a halt.

 

Index of Core Industries

Objective

  1. The objective of the Index of Core Industries is to provide an advance indication on production performance of industries of core nature before the release of Index of Industrial Production (IIP).

Releasing Organisation

  1. It is released on a monthly basis by the  Office of Economic Advisor, which comes under the Ministry of Commerce and Industry.

Base Year

  1. Its base Year is 2011-12.

Constituents

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

Core sectors (In decreasing order of Weight)

Sectors

Weight

Refinery Products

28.0376

Electricity

19.8530

Steel

17.9166

Coal

10.3335

Crude Oil

8.9833

Natural Gas

6.8768

Cement

5.3720

Fertilizers

2.6276

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: https://www.thehindu.com/business/Economy/march-core-sector-output-slumps-65/article31477076.ece

https://www.thehindu.com/opinion/editorial/ominous-contraction-the-hindu-editorial-on-march-2020-core-sector-output/article31484662.ece