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1st October 2024 (12 Topics)

India's Core Sector Output Contracts for the First Time in Four Years

Context

India's core sector output experienced a significant contraction of 1.8 percent in August 2024, marking the first decline in nearly four years. This follows a robust growth of 6.1 percent in July and a remarkable 13.4 percent expansion in August 2023. The slowdown is largely attributed to the high base effect from the previous year's performance.

Key-highlights:

  • In August, steel output slowed to 4.5 percent against 10.9 percent in the same month last year.
  • Natural gas production contracted by 3.6 percent during the month under review compared to an expansion of 10 percent in August 2023. 
  • India's coal production decreased by 8.1 percent in August, 2024 against an expansion of 17.9 percent in August 2023.
  • Crude Oil production dipped by 3.4 per cent in August YoY in the month under review. 
  • India’s manufacturing PMI had slumped to a three-month low of 57.5 in August compared with 58.1 in the previous month, as demand had softened. 
  • The eight core sectors contribute 40.27 percent to the Index of Industrial Production (IIP) which measures overall industrial growth.
  • Reason: The drop in output is primarily skewed due to last year's elevated growth figures. As a result, the average growth for the first five months of the year has now reduced to 4.6 percent, compared to 8 percent during the same period last year.
  • Impact: This contraction will significantly impact industrial production, particularly as manufacturing activity has also seen a decline.

Fact Box: Core Sector

  • The main or the key industries constitute the core sectors of an economy.
  • In India, there are eight sectors that are considered the core sectors. The eight-core sectors of the Indian economy are electricity, steel, refinery products, crude oil, coal, cement, natural gas and fertilizers.
  • These sectors have a major impact on the Indian economy and significantly affect most other industries as well.
  • The eight industries have a combined share of 40.27 per cent in the Index of Industrial Production (IIP), which gives the growth rates of different industry groups in a specified period.
  • Before the IIP is released, the Index of Eight Core Industries (ICI) is prepared every month and released by the Office of the Economic Adviser (OEA), Department for Promotion of Industry and Internal Trade (DPIIT), and Ministry of Commerce & Industry.
  • Components to calculate the ICI:
    • Coal – Coal production, excluding Coking coal.
    • Electricity – Electricity generation of thermal, nuclear, hydro, imports from Bhutan.
    • Crude Oil – Total crude oil production.
    • Cement – Production in large plants and mini plants.
    • Natural Gas – Total production of natural gas.
    • Steel – Production of alloy and non-alloy steel only.
    • Refinery Products – Total refinery production.
    • Fertilizer – Urea, ammonium sulfate, calcium ammonium nitrate, complex grade fertilizer, and single superphosphate, among others.

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