Editorials, GS-3, Indian Economy, Uncategorized

Annual core sector growth at decade low as steel drags

The Hindu

India’s annual core sector growth slowed to a decade low of 2.7 per cent in 2015-16, slower than the 4.5 percent pace in the previous financial year, according to government statistics.

  • The growth was pulled down by steel and crude oil.
  • Both of these saw output contracting by 1.4 per cent.
  • Natural gas that dropped 4.2 per cent.

This contrasts with the data showing robust core sector growth in March, when the infrastructure sectors expanded 6.4 per cent, the fastest pace in 16 months.

  • Eight core industries which include crude oil, fertilisers, steel, cement and electricity account for 38 per cent of India’s industrial output.
  • The index for industrial production (IIP) has grown at 2.7 per cent in the first 11 months of 2015-16, lower than the 2.8 per cent recorded in the previous year.
  • What is IIP?
    • The Index of Industrial Production (IIP) is an index for India which details out the growth of various sectors in an economy such as mining, electricity and manufacturing.
    • The all India IIP is a composite indicator that measures the short-term changes in the volume of production of a basket of industrial products during a given period with respect to that in a chosen base period.
    • It is compiled and published monthly by the Central Statistical Organisation (CSO) six weeks after the reference month ends.
  • Forecast for industrial output growth in the month of March is two per cent, so the full year 2015-16 growth could be a shade lower than in 2014-15.
  • Overall, the financial year 2015-16 hasn’t been great, though there are a few green shoots of recovery visible in consumers’ discretionary demand (car sales) and certain infra sectors like coal, electricity and cement due to the government’s capex efforts.
  • The larger question is if those green shoots can broaden into other sectors and revive private investments.
  • Private capex, rural demand and external demand still remain weak

Base effect

  • What is a base effect?
    The Base effect relates to inflation in the corresponding period of the previous year, if the inflation rate was too low in the corresponding period of the previous year, even a smaller rise in the Price Index will arithmetically give a high rate of inflation now.
  • While oil and gas output has been shrinking for about four years now, it is the decline in steel output in the backdrop of plunging global prices that has hurt the most as it had been growing at an average of 7 per cent in the past four years.
  • The March and April infrastructure output numbers may seem a little exaggerated owing to the base effect, as the same months had clocked negative growth last year.
  • The big disappointment is steel that has been hit by the low global prices and competition from China.
  • The steel industry employs six million people directly and generates associated employment for more than 2.5 million.

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