The eight crucial core sectors of India showed a growth of 6.8% in March 2021, recording the highest pace in 32 months. This improvement contradicts the 3.8% downturn observed in February. However, this sudden increase is primarily due to the base effects from March 2020. During the financial year 2020-21, the production of these eight sectors contracted by 7%, in comparison to a positive growth of 0.4% in the previous year, 2019-20.
About the Eight Core Sectors
These economic powerhouses make up for 40.27% of the weight of items included in the Index of Industrial Production (IIP). The eight core sector industries, in decreasing order with respect to their weightage, include Refinery Products, Electricity, Steel, Coal, Crude Oil, Natural Gas, Cement, and Fertilizers.
Explaining the Base Effect
The base effect refers to the influence that the choice of a basis of comparison or reference can exhibit on the outcome of the comparison between data points. This effect could lead to significant distortions in figures such as inflation rates or economic growth rates if the point chosen for comparison bears an unusually high or low value relative to the current period or the overall data.
In March 2021, the production of natural gas, steel, cement, and electricity exhibited a leap of 12.3%, 23%, 32.5% and 21.6% respectively. This shows a stark contrast to the drops in production of (-) 15.1%, (-) 21.9%, (-) 25.1% and (-) 8.2% recorded in March 2020. This difference demonstrates the impact of the low base effect in play.
The Index of Industrial Production (IIP)
The IIP is a critical indicator that measures the fluctuations in the volume of production of industrial products within a specified period. The National Statistical Office (NSO), Ministry of Statistics and Programme Implementation, compiles and publishes this data monthly.
The IIP works as a composite indicator that measures industry group growth rates under two primary classifications. The first is Broad sectors, including Mining, Manufacturing, and Electricity, and the second is Use-based sectors, which comprise of Basic Goods, Capital Goods, and Intermediate Goods. The base year for calculating the IIP is 2011-2012.
The Significance of the IIP
The IIP carries great importance for government agencies such as the Ministry of Finance and the Reserve Bank of India for policy-making purposes. It remains highly relevant for computing quarterly and advance estimates of the Gross Domestic Product (GDP).
Last Modified: February 13, 2024