The eight core industries of the Indian economy witnessed a contraction for the fourth consecutive month, with a 15% shrinkage in June 2020. The contributing factors behind this contraction are mostly due to the COVID-19 pandemic and the subsequent nationwide lockdown. These eight industries include coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity, altogether accounting for 40.27% in the Index of Industrial Production (IIP).
Analysis of the Overall Contraction
From April to June 2020, the total output of these core sectors decreased by 24.6% as compared to a positive growth of 3.4% registered during the same period the previous year. However, an observation worth noting is that the contraction of 15% in June suggests some economic recovery. In May 2020, the contraction stood at a more significant 22%. Economic experts have projected the continuation of this downward trend for at least a couple more months.
Evaluating Performance Across Industries
Out of all the eight core industries, only the fertiliser industry witnessed growth in June, with a rise of 4.2% in output when compared to June 2019. This mild uptick, although lower than the 7.5% growth seen in May, signals positivity in the agriculture sector buoyed by the expected good yield of the kharif crop, thanks to the normal monsoon.
The remaining seven sectors including coal (-15.5%), crude oil (-6.0), natural gas (-12%), refinery products (-9%), steel (-33.8%), cement (-6.9%), and electricity (-11%) recorded negative growth in June. With a 33% drop in production from the previous year, the steel sector was the worst-performing among them all.
Index of Industrial Production
The Index of Industrial Production (IIP) is an indicator that shows the growth rates in various industry groups of the economy over a fixed period of time. The IIP is compiled and published monthly by the National Statistical Office (NSO), Ministry of Statistics and Programme Implementation.
It measures the growth rate of industry groups classified under broad sectors such as Mining, Manufacturing, and Electricity and use-based sectors, namely Basic Goods, Capital Goods, and Intermediate Goods. The eight core sector industries represent approximately 40% of the weight of items included in the IIP. In decreasing order of their weightage, they are: Refinery Products > Electricity > Steel > Coal > Crude Oil > Natural Gas > Cement > Fertilizers. The base year for calculating the IIP is 2011-2012.
The Importance of IIP
The IIP indicates the physical volume of production and is used by various government agencies, including the Ministry of Finance, the Reserve Bank of India, among others, for policy-making. It holds a significant position in calculating quarterly and advance Gross Domestic Product (GDP) estimates.
Looking Ahead
The positive impact from the easing of the lockdown restrictions has not been strong enough to mitigate the negative effects of the lockdown itself. For sustainable economic recovery, it is imperative for the government to effectively contain the spread of the ongoing coronavirus pandemic.