The performance of India’s core infrastructure sectors has been lackluster recently, with reports indicating a 9.6% drop in output as of July 2020. This continuous contraction, observed over the past five months, highlights significant economic challenges exacerbated by the ongoing Covid-19 crisis.
Reasons for the Contraction
This sustained decline can primarily be attributed to reduced production in key industry sectors including steel, refinery products, and cement. The situation is further complicated by an overall weak demand and surplus supply scenario, both domestically and globally, caused largely by disruptions related to the Covid-19 pandemic.
In July, growth in local demand was further stunted due to soaring fuel prices, the imposition of renewed lockdowns in parts of the country, and disruptions to transport, industrial and construction activities triggered by monsoon rains.
Past Trends & Current Scenario
Compared to the present situation, the performance of these eight core sectors had expanded by 2.6% in July 2019. Except for fertilizers, which grew by 6.9%, all other sectors including coal, crude oil, natural gas, refinery products, steel, cement, and electricity, recorded negative growth in July.
Of these, steel witnessed the highest decline at 16.5%, closely followed by refinery products at 13.9%. The smallest contraction was seen in the electricity sector at 2.3%.
The Eight Core Sector Industries
The core sector industries comprise coal, crude oil, natural gas, refinery products, fertilizers, steel, cement, and electricity. Collectively, these account for 40.27% of the weightage of items included in the Index of Industrial Production (IIP).
These eight core industries are positioned in decreasing order of their weightage as follows: Refinery products, electricity, steel, coal, crude oil, natural gas, cement, and fertilizers.
Detailed Industry Weightage
The weightage of each industry, expressed in percentages, is as follows: Petroleum & Refinery production (28.04), Electricity generation (19.85), Steel production (17.92), Coal production (10.33), Crude Oil production (8.98), Natural Gas production (6.88), Cement production (5.37), and Fertilizers production (2.63).
About the Index of Industrial Production
The Index of Industrial Production (IIP) serves as a pivotal indicator that tracks changes in the volume of industrial product production during a specific period. This index is updated and published monthly by the National Statistical Office (NSO), under the Ministry of Statistics and Programme Implementation.
The IIP measures growth rates across multiple industry groups classified under broad sectors (like mining, manufacturing, and electricity) and use-based sectors (such as basic goods, capital goods, and intermediate goods).
Currently, the base year for the IIP is 2011-2012.
Significance of the IIP
The IIP assumes critical importance for numerous government agencies, including the Ministry of Finance and the Reserve Bank of India, both of which use it extensively for policy-making. Furthermore, the IIP plays a crucial role in calculating quarterly and advance GDP estimates, thereby offering key insights into the country’s economic health.
