In March 2020, data released by the Ministry of Commerce and Industry revealed a contraction of the eight core sector industries by 6.5%. While the cumulative growth of these industries stood at 0.6% during the fiscal year 2019-20, February 2020 recorded a growth of 5.5%.
Recession Across Core Industries
The report further stated that out of the eight core sectors, seven experienced a contraction in March. This included sectors such as steel and electricity production, cement and natural gas production, fertiliser and crude oil production along with petroleum & refinery production. According to the data, only the coal industry saw a rise in production.
Interestingly, the contraction in these key sectors occurred despite several industries being exempted under the lockdown regulations. For instance, continuous processes like electricity and steel were allowed to continue operations.
Impact of Nationwide Lockdown
However, due to the nationwide lockdown, the movement of goods faced drastic restrictions, leading to decreased demand and subsequently, lower production. Despite these industries receiving exemptions, the overall demand fell due to the limitations placed on transportation and logistics.
Fiscal Measures by Government
The contraction in March also echoed the decrease in capital expenditure by both state and central governments. This was primarily an attempt to compensate for the decline in tax revenues amid the pandemic. Capital expenditure, which involves spending on acquisition of assets like land, buildings, machinery, and equipment, is considered crucial for spurring economic growth.
Understanding the Core Sector Industries
The eight core industries include coal, crude oil, natural gas, refinery products, fertilizer, steel, cement, and electricity. They collectively comprise 40.27% of the Index of Industrial Production (IIP) weightage. The order of their weightage from highest to lowest are Refinery Products, Electricity, Steel, Coal, Crude Oil, Natural Gas, Cement, and Fertilizers.
Decoding the Index of Industrial Production (IIP)
The Index of Industrial Production (IIP), issued by the National Statistical Office under the Ministry of Statistics and Programme Implementation, is a key indicator that gauges changes in the volume of industrial product production. Diverse industry groups such as Mining, Manufacturing, and Electricity, along with sectors like Basic Goods, Capital Goods, and Intermediate Goods are represented in this index.
Significance of IIP in Policy Making
The IIP plays a pivotal role in policy making for multiple government agencies such as the Ministry of Finance and the Reserve Bank of India. It is considered imperative for computing quarterly and advance GDP estimates. Therefore, the dynamics of the eight core industries, which constitute about 40% weightage in the IIP, significantly influence these policies and indicators.