The revision of the base year from 2004-05 to 2011-12 which was long overdue has recently been completed and new sets have been released by CSO. Accordingly the WPI, GVA, GDP and IIP data have all been recaptured to include the new sets of industries and service areas that have emerged in the recent past and exclude the abandoned trades and industries that have much diminished their importance. In the earlier years the input-output model showing the interdependence of various sectors in Indian economy and the resultant impact of one unit variation in demand or supply of one sector on the other dependent sectors were invaluable inputs for taking appropriate policy decisions.
One of the major constraining factors was the choice of old base year that did not reflect the true interdependence amongst the various sectors and also non-availability of sectoral linkages on a regular basis as the time progresses. In the absence of appropriate data linkages, it was not possible to analyse which sectoral growth or decline impacts the various connected sectors and by how much. It is also true that over the years a set of new linkages have emerged between each sector of the economy due to obsoleteness and similar other factor operating in the market dynamics rendering it very difficult to measure the connectivity and include these in a model. Niti Aayog can still work out a latest general equilibrium model of Indian economy which some other analytical and research bodies have already developed. This is an area where maximum disconnect is observed between what this type of modeling the economy actually prescribes and what the industry and service sectors deem it fit to be appropriate. This loss of apparent connectivity has sometimes enhanced the extent of irrelevance of industrial production data with what is happening actually in the field.
Another difficulty of using the connectivity factor is felt while forecasting the requirements of inputs with output variation. For instance, it is possible to estimate the volume of coking coal required by ISPs when the capacities would be around 300MT in the next 13 years’ time. Considering the various technologies adopted by the ISPs to bring down coal consumption (coal dust injection, pulverised coal, non-coking coal to gas) and the possibility of low cost energy by non conventional energy technologies including solar, there may be substantial reduction in coking coal requirement for steel production and this would go a long way to lowering the production cost of steel and improve energy efficiency and bring down CO2 emission. Thus the inter-sectoral dependability factor would be regularly changing depending on the latest technology and one of the best methods to capture and monitor these changes would be revising the base year periodically. This also holds good for estimating the long term demand for iron ore considering the increasing use of pellets in the BFs and more use of beneficiation facilities.
Industrial production on the revised base has moved up by 3.1% in the month of April’17 as compared to 5.0% growth in Fy17 and 1.9% in March’17. It is important to see that steel is now categorised on the basis of its use as intermediate sector (semi finished steel, pipes and tubes) and infrastructure/construction sector (HR coils, CR coils, GP/GC, long and flat products of carbon, alloy and stainless steel, rails). The steel sector including pig iron, sponge iron, ferro alloys and steel framework for towers as per the new series has a combined weight of 11.6% in industrial production which is much more than the weightage in the old series. This single factor therefore indicates the growing importance of steel industry in the industrial production of the country over the last 7 years. During April’17 while intermediate sector has risen by 4.6% which exceeds 3% growth it achieved in Fy17, the infrastructure/construction sector has moved up by 5.8% against a meager 3.8% growth achieved in last year. These two sectors along with capital goods and consumer durable sectors with a combined weightage of 50.62% in manufacturing has contributed it to grow by a positive 2.6% in the first month of the current fiscal which is however lower than 5.5% growth in last April.
Thus in a way, the new series is a much better representative of the market realities. The predominant role of steel industry in the manufacturing and industrial growth of the country has now been firmly established.