Economics Prelims cum Mains

Core sectors’ output up 5.1% in May on strong growth in steel, electricity

The News:

  • For April-May 2019, the output of the eight core industries grew 5.7 per cent, against 4.4 per cent in the same period last year.

News Summary

Core Industries Performance in May 2019

  • The steel and electricity sectors grew strongly at 19.9 per cent and 7.2 per cent respectively.
  • Growth has been lacking in the other sectors i.e. negative in Crude oil, Refinery products and Fertilisers and no growth in Natural gas.
  • In the case of Mining and Cement, it was 1.8 per cent and 2.8 per cent, respectively.

Note: There was limited activity in the government sector as government expenditure was focussed on social programmes that included the rollover of subsidies in some segments.

About Index of Industrial Production (IIP)

  • Index of Industrial Production (IIP) shows the performance of different industrial sectors of the Indian economy.
  • The IIP is estimated and published on a monthly basis by the Central Statistical Organisation (CSO) .
  • As an all India index, it gives general level of industrial activity in the economy.

Importance of Index of Industrial Production

  • The IIP is used by public agencies including the Government agencies/ departments including that in the Ministry of Finance, the Reserve Bank of India etc. for policy purposes.
  • The all-India IIP data is used for estimation of Gross Value Added (GVA) of Manufacturing sector on quarterly basis.
  • Similarly, the data is also used extensively by analysts, financial intermediaries and private companies for various purposes.

Core Industries

  • The core sector is an aggregate of 8 core sectors that are fundamental to the Indian economy.
  • These 8 sectors constituting the core sector are important because they account for nearly 40.27% of the overall IIP and hence have long term repercussions for corporate profit growth as well as for the overall GDP growth.
  • These are Electricity , Steel, Refinery products, Crude oil, Coal, Cement, Natural gas and Fertilisers.

Purchasing Manager Index (PMI)

  • ‘Purchasing Managers’ index (PMI) is considered as an indicator of the economic health and investor sentiments about the manufacturing sector.
  • This index is prepared on the basis of a survey which is conducted among purchasing executives in over 400 companies. An index over 50 shows expansion, while below 50 mean contraction.
  • It is prepared by IHS Markit, and is widely quoted to explain the latest industrial situation.
  • The PMI is constructed separately for manufacturing and services sector, but the manufacturing sector holds more importance.
  • PMI is calculated on the basis of information received from companies on various factors that represent demand conditions.
  • It is very different from industrial production which is indicative of actual production.

Decline in PMI

  • As per the latest data, India’s manufacturing sector growth moderated in June amid softer increase in new work intakes.
  • PMI slowed down to 52.1 in June, as against 52.7 of May.

Summary of the Survey

  • According to the survey, consumer goods was the key source of growth, where robust increases in sales, output and employment were registered.
  • There were modest expansions in production and new work in the intermediate goods category, but jobs stagnated.
  • Operating conditions in the capital goods sector were broadly unchanged.
  • Growth of new export orders also showed signs of weakness.

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