Core Sectors Industries

Context:

The output of Eight Core Industries grew at 3.1 %, the slowest pace in eight months in November, indicating slowing momentum in the Indian economy. Barring crude oil and cement, all other sectors recorded positive growth.

About Core Sectors:

• The Office of Economic Adviser, Department for Promotion of Industry and Internal Trade releases Index of Eight Core Industries (ICI).
• ICI measures combined and individual performance of production in selected eight core industries viz. Coal, Crude Oil, Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity.
• The Eight Core Industries comprise 40.27% of the weight of items included in the Index of Industrial Production (IIP).

Eight Core Sectors Industries of the Indian economy are:

1. Electricity
2. Steel
3. Refinery products
4. Crude oil
5. Coal
6. Cement
7. Natural gas
8. Fertilizers

These industries have a major impact on general economic activities and also industrial activities. They significantly impact most other industries as well. The core sector represents the capital base of the economy.

The IIP gives the growth rates of different industry groups of the economy over a specified period.

• Prior to the 2004-05 series six core industries namely Coal, Cement, Finished Steel, Electricity, Crude petroleum and Refinery products constituted the index basket.
• Two more industries i.e. Fertilizer and Natural Gas were added to the index basket in 2004-05 series. The ICI series with base 2011-12 will continue to have eight core industries.

Weight of Core Industries in IIP

The weight of the different core sectors in the Index of Industrial Production is given in the table below.

Importance of Core Industries

• The core sectors have a major impact on the Indian economy and significantly affect most other industries as well.
• Their measures help account the physical volume of production in India.
• Their analysis offers clearer and realistic assessment of what’s happening in the economy
• Their progress is used by government agencies for policy-making purposes.
• They remain extremely relevant for the calculation of the quarterly and advance Gross Domestic Product (GDP) estimates.
• The core sector is also known as Infrastructure output as they represent the basic industries that form the base of the economy.

Index of Eight Core Industries (ICI)

The ICI is a production volume index prepared and released by the Office of the Economic Adviser (OEA), Department for Promotion of Industry and Internal Trade (DPIIT), Ministry of Commerce & Industry, GOI.

• It is released 12 days before the IIP is released.
• The objective of the Index of Eight Core Industries is to give an advance indication on the production performance of the industries which are of ‘core’ nature before the release of the IIP.
• The ICI measures the individual and collective performances of the production in these eight core industries.
• The ICI is used by policymakers including the Ministry of Finance, other Ministries, and Departments.
• It is also used by banks for financing infrastructure projects and the Reserve Bank of India (RBI).
• To calculate the ICI, the components covered under the eight core sectors are mentioned in the table below:

• Coal – Coal Production excluding Coking coal.
• Electricity – Actual Electricity Generation of Thermal, Nuclear, Hydro, imports from Bhutan.
• Crude Oil – Total Crude Oil Production.
• Cement – Production of Large Plants and Mini Plants.
• Natural Gas – Total Natural Gas Production.
• Steel – Production of Alloy and Non-Alloy Steel only.
• Refinery Products – Total Refinery Production (in terms of Crude Throughput).
• Fertilizer – Urea, Ammonium Sulphate (A/S), Calcium Ammonium Nitrate (CAN), Ammonium chloride (A/C), Diammonium Phosphate (DAP), Complex Grade Fertilizer and Single superphosphate (SSP).
• The ICI is released every month. The index is calculated by using the Laspeyres formula of the weighted arithmetic mean of quantity relatives.

Source: Economic Times

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