Core sector output growth spurts

 

Context:

India’s 8 core sectors have seen an increase in their output growth of 6.7% which is a three month high in February.

 

Relevance:
GS-03 (Economy)

 

Key highlights:

  • Crude oil production increased by 7.9% which is an all-time high growth rate due to the base effects.
  • Natural gas increased by 11.3% (highest in two years), cement, electricity, and coal production also witnessed significant growth.
  • This trend signals a reversal of the declining trend which was observed in previous months.
  • Due to this robust performance of core sectors, it is predicted that the Index of Industrial Production (IIP) will see an expansion ranging from 4% to 6.5% in February.
  • Altogether, the surge in output growth shows a broader economic recovery, contributing to boosting industrial output and investment in the coming months.

Source: The Hindu

 

Base effect:

  • It is the effect of the last year’s price level (last year inflation) over the corresponding rise in prices of the current year.
  • Example: If the inflation rate was low in the corresponding period of the last year, even a small increase in the price index will give a high rate of inflation in the current year.
  • The base effect could also lead to significant variations in percentage comparisons. Choosing a reference point that is too low could lead to overestimation, while selecting a base that is too high could result in substantial underestimation of the situation.

 

Index of Industrial Production (IIP)?

  • It is an index that shows the growth rates in different industry groups of the economy in a stipulated period of time.
  • It measures the industry groups classified under Broad sectors (Mining, Manufacturing, Electricity) and Use-based sectors (Basic Goods, Capital Goods, Intermediate Goods).
  • It is computed and published by the Central Statistical Organisation (CSO) under the Ministry of Statistics and Programme Implementation on a monthly basis.
  • Currently, the base year for IIP calculation is 2011-12.
  • It is used by the government agencies for Policy Making.

 

Core Industry:

  • There are eight core sectors. They are Coal, crude oil, natural gas, refinery products, fertilizer, steel, cement and electricity.
  • They comprise 40.27% of the weight of items included in the Index of Industrial Production (IIP).
  • The eight Core Industries in decreasing order of their weightage: Refinery Products> Electricity> Steel> Coal> Crude Oil> Natural gas> Cement> Fertilizers. 
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