The latest reports indicate a surge of 8.9% in the output of India’s eight core sectors in June 2021. However, it is important to note that this figure falls short of the production levels witnessed before the Covid-19 pandemic and its subsequent second wave. This growth can largely be attributed to Base Effect, a term we’ll explore later.
Understanding the Eight Core Sectors
Collectively, these sectors carry a weightage of 40.27% within the Index of Industrial Production (IIP). The order of industries descending in terms of their weightage includes Refinery Products, Electricity, Steel, Coal, Crude Oil, Natural Gas, Cement, and Fertilizers. These sectors play an essential part in India’s economy and their output has an enormous impact on industrial production levels.
Elucidation of Base Effect
The Base Effect refers to the potential distortion in data comparison due to the choice of basis or reference point. Essentially, if the value at the point of comparison is unusually high or low relative to the current period or overall data, the resulting figures might be overstated or understated – this is the base effect. For instance, it could skew inflation rates or economic growth rates.
Production Statistics: A Closer Look
Delving into the details, production of coal, natural gas, refinery products, steel, cement and electricity in June 2021 saw an increase by 7.4%, 20.6%, 2.4%, 25%, 4.3%, and 7.2%, respectively. However, it is important to contrast these numbers with the figures from the same period last year, which showed decreases of 15.5%, 12%, 8.9%, 23.2%, 6.8%, and 10% respectively.
Exploring the Index of Industrial Production (IIP)
IIP is a measurable indicator that tracks changes in the volume of industrial product production over a specific period. The National Statistical Office (NSO), under the Ministry of Statistics and Programme Implementation, compiles and publishes this data on a monthly basis.
The IIP measures growth rate for different industry groups under two primary categories: Broad sectors- Mining, Manufacturing, and Electricity and Use-based sectors- Basic Goods, Capital Goods, and Intermediate Goods. The base year for calculating the IIP is the fiscal year 2011-2012.
The Significance of IIP
The IIP is a valuable tool used by government agencies like the Ministry of Finance, the Reserve Bank of India, among others, shaping their policy-making process. Notably, it continues to play a critical role in the computation of quarterly and advance GDP (Gross Domestic Product) estimates.