Growth slips to 3.6% for 8 Core Sectors in May end

The growth of eight core sectors slowed to 3.6% in May 2017 due to fall in output of coal and fertilisers. It was 5.2% in May 2016. In April 2017, these eight sectors had recorded a growth rate of 2.8%. Data released by the Commerce and Industry Ministry on Friday also showed that the eight core industries — coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity — had cumulative growth of 3.2 per cent in the first two months of the current financial year.

Contributing 40 per cent to the total industrial production, core sector output had dipped in April mainly due to tepid growth across sectors apart from steel, electricity and fertilizers.

Coal production continued to contract by 3.3 per cent for the second consecutive month. “The continued contraction in coal output in May 2017 is likely to reflect inventory management, following the double-digit growth in March 2017.” Principal Economist at ICRA, Aditi Nayar said.

Also, after the prolonged contraction in cement output for five months, the sector recorded a modest growth in May 2017, which may portend a nascent turnaround in construction activities.

ICRA expects cement demand growth to recover to around 4-5% during FY2018, driven by a pick-up in the housing and infrastructure segments, particularly, road and irrigation, Nayar added.

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Key Stats and Indicators

  • In May 2017, Coal and fertiliser productions recorded negative growth of 3.3% and 6.5%, respectively. Steel sector growth dipped to 3.7% as against 13.4% in May 2016.
  • Slow growth in these key sectors may also have implications on the Index of Industrial Production (IIP) number as these segments account for about 41% to the total factory output.
  • However, growth in refinery products and electricity output grew by 5.4% and 6.4% in May 2017 as against 3.3% and 6.2%, respectively in the same period last year.
  • Natural gas production too grew by 4.5% in May 2017 as against a negative growth rate of 6.5% a year earlier.
  • Economists suggested an unfavorable base effect went against prospects of growth in fertilizers and steel output.
  • Fertilizer production again contracted in May, going down by 6.5 per cent. The sector had seen four consecutive months of contraction until April when it had risen by 6.5 per cent.

Eight Core Sectors and IIP

  • In India, there are eight core sectors comprising of coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity. The electricity has the maximum weight of 10.32% followed by Steel (6.68%), Petroleum Refinery (5.94%), Crude Oil production (5.22 %), Coal production (4.38 %), Cement (2.41%), Natural Gas production (1.71 %) and Fertilizer production (1.25%).
  • These eight Core Industries comprise nearly 38% of the weight of items included in the Index of Industrial Production (IIP), which measures factory output. Core industry can be defined as the main industry. In most countries, there is a particular industry that seems to be the backbone of all other industries and it qualifies to be the core industry.
  • Index of Industrial Production (IIP) measures the quantum of changes in the industrial production in an economy and captures the general level of industrial activity in the country. It is a composite indicator expressed in terms of an index number which measures the short term changes in the volume of production of a basket of industrial products during a given period with respect to the base period.
  • The base year is always given a value of 100. The current base year for the IIP series in India is 2011-12. So, if the current IIP reads as 116 it means that there has been 16% growth compared to the base year.
  • IIP is a short term indicator of industrial growth till the results from Annual Survey of Industries and National Accounts Statistics are available. However, IIP is considered to be one of the lead indicators for short-term economic analysis because of its strong relationship with economic fluctuations in the rest of economy. Most of services, like transport, storage, communication, real estate, insurance and banking are industry dependent and are considerably influenced by industrial performance.
  • Index of Industrial Production is compiled and published every month by Central Statistics Office (CSO) of the Ministry of Statistics and Programme Implementation with a time lag of six weeks from the reference month. i.e., at the time of release of IIP data, quick estimates for the relevant month along with revised and final indices of previous two months respectively, (on the basis of updated production data) are released.

(Source: PIB)

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