Context: The Index of Eight Core Industries grew at 1.7% in June 2025, as compared to 5% in June 2024. IIP had registered a growth of mere 0.5% in April 2025, its lowest in the last eight months. The output of eight core infrastructure sectors makes up 40% of the country's industrial production.
Relevance of the Topic: Prelims: Key facts about Index of Eight Core Industries.
Index Of Eight Core Industries
Index of Eight Core Industries (ICI) measures combined and individual performance of production of eight core sectors in India, comprising- coal, crude oil, natural gas, petroleum refinery products, fertilisers, steel, cement and electricity.
These eight core industries constitute 40.27% of the total index of industrial production (IIP).
This index is prepared by the Office of the Economic Advisor, Ministry of Commerce and Industry.
It is published monthly with the base year as 2011-12.
Context: RBI’s economic activity index (EAI) has nowcast GDP growth for Q3 (October-December) FY24 at 7 per cent, according to an article in the central bank’s latest monthly bulletin
What is the Economic Activity Index (EAI)?
The economic activity index is an efficient predictor of advanced quarterly GDP estimates of the NSO.
This index uses twenty-seven monthly indicators representing industry, services, global and miscellaneous activities to gauge the underlying state of the economy.
These indicators, directly or indirectly, cover a wide spectrum of domestic activities.
Many central banks have developed “nowcasting” models, which are used to predict the present, the very near future and the very recent past almost on a real time basis using regular high-frequency data releases on activity indicators.
Why the Need?
Official GDP estimates are available with a lag of almost two months and these delays pose constraints on optimal policy decisions.
In this regard, high frequency indicators of economic activity, which are available with shorter lags, offer an alternative for real-time tracking of the economy to aid forward-looking policy.
Context: Fitch Ratings has lowered its 2023-24 GDP growth forecast for India to 6%, from 6.2%, citing headwinds from elevated inflation and interest rates along with subdued global demand, with the expansion seen quickening to 6.7% in 2024-25, as against the 6.9% projected earlier.
India's GDP Growth Projection
India was given default rating at ‘BBB-’ with a stable outlook. It indicates that expectations of default risk are currently low and payment capacity to meet financial commitments is considered adequate, but adverse business or economic conditions are more likely to impair this capacity.
It forecast headline inflation to decline, but remain near the upper end of the Reserve Bank of India’s 2%-6% target band, averaging 5.8% in FY24.
About Fitch:
Fitch Ratings Inc. is an American credit rating agency and is one of the "Big Three credit rating agencies", the other two being Moody's and Standard & Poor's. It is one of the three nationally recognized statistical rating organizations (NRSRO) designated by the U.S. Securities and Exchange Commission in 1975.
What Are Credit Rating Agencies?
Credit rating agencies (CRAs) evaluate and rate the creditworthiness of debt securities and their issuers, including companies and countries. These agencies assign credit risk ratings to such entities based on quantitative and qualitative analyses. Ratings show the likelihood of a borrower to default or repay a loan with interest.
Credit rating services use unique letter codes to depict the default risk and the financial stability of the debt issuer. While these ratings provide risk measures for an entity, investors get to know about its creditworthiness. Besides corporations and nations, these ratings can be for stocks, bonds, mortgage-backed securities, collateralized debt obligations, and credit default swaps.
The rating services assign letters to represent the risk of default and financial viability of the debt issuer, based on quantitative, qualitative, and contextual analyses.
Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings are the 3 big credit rating agencies, with a combined market share of approximately 95%.
How Do Credit Rating Agencies Work?
Credit rating agencies evaluate and rate companies, nations, governments, or financial instruments. They essentially provide information about the quality of fixed-income securities and debt obligations and their issuers’ ability to repay the principal amount and interests. In short, these credit risk ratings help retail and institutional investors get an idea of the solvency of the borrower and its products. They can decide whether the security in question is worth the investment or just speculation.
What Do Credit Ratings Say?
Credit rating meaning differs with entities and financial instruments, though they evaluate issuers’ credit or default risks and debt obligations. For example, a company can use it to rate its debt securities, while a country can use the same to attract domestic and foreign investments. Ratings for sovereign debts indicate the country’s ability to repay its debt. Also, a sovereign credit rating facilitates access to international financial markets for the government.
Similarly, a bank can use it to assess the risk premium on loans. Poorly rated loans have a higher risk premium and higher interest rates. A higher credit rating enables the borrower to obtain loans at a lower interest rate. Credit ratings allow traders to trade fixed-income on the secondary market and influence their interest rates – a higher grade gets a lower interest rate.
Credit risk ratings indicate the likelihood of a borrower defaulting on its obligation. While low risk suggests investment, high risk implies speculation. Furthermore, these scores provide an outlook for an issuer or financial product in the future. Also, these scores aid in the development of the financial market and its regulations.
Role Of Credit Rating Agencies
The primary role of credit rating services is to assess the credit risks and solvency of structured debt securities and their issuers, i.e., companies and governments. Since they also act as financial intermediaries, there are multiple objectives that they fulfil, such as:
Credit rating agencies in India:
Currently, there are 7 leading Credit Rating Agencies (CRAs) in India, such as CRISIL, ICRA, CARE, Acuite Ratings & Research, Brickwork Ratings India Pvt. Ltd. India Ratings and Research Pvt Ltd, and Infomerics Valuation and Rating Pvt. Ltd. that are authorised by SEBI to assess credit ratings.
SEBI (Securities and Exchange Board of India) authorizes and regulates all Credit Rating Agencies (CRAs) in India as per SEBI Regulations, 1999 of the Securities and Exchange Board of India Act, 1992.
What is the difference between credit rating and credit score?
Credit rating involves evaluating the creditworthiness of entities, usually governments and businesses, by credit rating agencies, such as CRISIL, ICRA, CARE, etc. Credit ratings are usually expressed as letter grades.
Whereas, credit scores usually help determine the creditworthiness of individuals and are calculated on the basis of the credit history found in the credit report.
Credit scores are computed by four major credit bureaus in India including TransUnion CIBIL, Equifax, Experian and CRIF Highmark. Credit score is a 3-digit number ranging between 300 to 900, where a score closer to 900 is generally considered to be a good score.
Context: The Indian government is considering methods to measure the value of women's household chores to the country's GDP.
Gender Gap (GDP) in India
India is exploring methods to measure the contribution of household chores performed by women to the country's GDP.
The government plans to make the Time Use Survey a regular feature to understand how much time women spend on household work. Other methods, such as the diary method and direct observation method, are also being considered.
The government may develop a methodology to quantify household work and its contribution to the GDP.
Women in India spend more time on unpaid domestic services for household members than men.
Experts are skeptical about including personal consumption activities in the GDP and how household chores would add to India's GDP.
Measuring the contribution of household chores performed by women can bring about several benefits to both the economy and women in particular.
Recognition of the economic contribution of women: Measuring household work can recognize women's significant contribution to the economy, highlighting the economic value of unpaid domestic services and their role in the country's economy.
Better policy formulation: Data on women's household work time can inform policymaking, leading to more targeted policies for women and their families, in areas such as health, education, and employment.
Improved economic planning: The measurement of household work can help in improved economic planning and decision-making. This can provide policymakers with a more complete picture of the economy and help them make more informed decisions.
Empowerment of women: Measuring household chores as part of GDP can empower women by recognizing their work as valuable economic activity, leading to increased labor force participation, better wages, and working conditions.
The measurement of household chores performed by women can help in recognizing the value of women's unpaid work and enable policymakers to design more targeted policies for women's economic empowerment.
Economic Territory: Geographical territory administered by a government within which persons, goods and capital circulate freely. Includes:
Political frontiers including territorial waters & air space.
Embassies, consulates, military bases, etc. located abroad. (Excluding those located within the political frontiers).
Ships, aircrafts etc., operated by residents between two or more countries. For ex., Air India’s services between different countries
Fishing vessels, oil & natural gas rigs and floating platforms operated by residents of the country in the international waters or engaged in extraction in areas where the country has exclusive rights of operation.
Normal Residents’ Vs Indian Citizens
Normal Resident: Person who ordinarily resides in a country and whose centre of economic interest also lies in that country. Include both nationals (such as Indians living in India) and foreigners (non-nationals living in India).
Citizens: Include Indian nationals living within India as well as outside India.
GDP vs GNP
Resident: Economic concept; Person or an institution whose centre of economic interest lies in the economic territory of the country in which he lives.
Citizens: Legal Concept
GDP calculation: All Residents (Includes foreign Residents within India & excludes Indian Citizens outside India.)
GNP Calculation: All the citizens (Includes all Indian Citizens both inside as well as outside India)
Scope of Goods Covered
Covers all Final Goods; does not cover Intermediate Goods since it leads to double accounting.
Does not include sale of secondhand Goods; but services offered on such sales considered.
Includes even those Goods that are not marketed but produced for self-consumption.
Includes even those Goods that remain unsold; considered as addition to Inventories/ Investment.
Scope of Services Covered
Covers all services which are produced within the Country.
Does not include non-marketable services such as household chores, care for elderly etc.
Exception: Imputed rent of a building that is owned and occupied by owners themselves.
Transfer Payments
National Income should consider only the factor incomes i.e., income earned through the provision of factors of production. Hence, transfer payments i.e., old age pensions, education grants, unemployment benefits, gifts not included in the GDP Calculation.
Similarly, remittances are also not accounted for.
Production vs Product Taxes
Production Taxes: Taxes paid on land, labour, assets such as Land revenue, stamp duty, Registration fee, Professional tax. Not taxed on per unit of product.
Product Taxes: Taxes paid on per unit of product such as GST, Excise Duty, Customs duty etc.
Production vs Product Subsidies
Production Subsidies: Subsidies to the entire enterprise and not specific to product. Examples include Subsidies to Railways, Farmers, Small scale Industries etc.
Product Subsidies: Product specific subsidies such as Food, LPG, Kerosene, Fertilisers etc.
Factor Cost vs Basic Price vs Market Price
GDP is calculated by considering 3 different prices
Factor Cost: Cost of factors of Production such as land, Labour & Capital.
Basic Price (Price expected to be received by Producer): Factor Cost + Production Taxes- Production Subsidies.
Market Price (Price expected to be paid by consumer): Basic Price+ Product Taxes- Product Subsidies.
GDP at Market price = GDP at Basic price + Product Taxes- Product Subsidies
Or
GDP at Market Price = GDP at Factor Cost + Production Taxes + Product Taxes – (Production Subsidies + Product Subsidies)
Or
GDP at Market price = GDP at Factor Cost + Indirect Taxes – Subsidies
Methods for GDP Calculation
Expenditure Method
GDP = PFCE + GFCE + GCF + (X-M)
Private Final Consumption Expenditure (PFCE): Expenditure incurred by the households on Goods and Services (only Marketable services).
What does it include?
Expenditure incurred by Residents within India.
Expenditure incurred by Residents outside India (Say, Tourism, Education accounted as Imports)
Expenditure incurred by non-residents within Economic territory of India considered as Exports
Government Final Consumption Expenditure: Compensation of employees (wages and salaries + pensions) + Net purchase of goods and services + Consumption of fixed capital (CFC). Note: Excludes the transfer payment.
Gross Capital Formation (GCF): Calculated as Gross Fixed Capital Formation (GFCF) + Changes in Stocks + Net acquisition of valuables.
Gross Fixed Capital Formation (GFCF) comprises of:
Construction and Maintenance of fixed assets such Infrastructure such as Dwellings, Roads, Railways etc.
Machinery and Equipment (3) Intellectual Property Rights such as R&D, Software etc.
Cultivated biological resources - Increment in Livestock and Plantation.
Exports (X) & Imports (M): Imports need to be subtracted since National Income should consider Goods & Services produced within Economic territory.
GDP By Income Method
Compensation of employees (CE): Total remuneration in cash or in-kind payable by employers to employees for the work done. Direct social transfers such as payments for sickness, educational grants and pensions are also imputed to compensation of employees.
Operating Surplus (OS): Operating surplus for Organised sector: Retained Earnings + Dividend + Interest on Capital
Mixed Income (MI): Mixed Income for Unorganised/ Household sector: Difficult to differentiate between Employment income (Wages) & Profits (Operating Surplus)
Consumption of Fixed Assets: Rent on land, Buildings and other structures
GVA at Basic Prices = (CE+ OS/MI+ CFA) + Production Taxes – Production Subsidies
GDP = GVA at Basic Prices + Product Taxes – Product Subsidies
GDP By Production Method
Gross Value Added (GVA) = Value of Output- Value of Intermediate Consumption.
GDP at Market Price = GDP at basic Price + Product Taxes – Product Subsidies
Nominal GDP Vs Real GDP
Nominal GDP: Refers to GDP at current market prices i.e., the GDP is calculated as per the market prices for the year for which the GDP is calculated.
Real GDP: Refers to GDP at base year prices i.e., GDP is calculated as per market prices in the base year. Thus, the Real GDP negates the inflation in goods and services.
In case of high rate of inflation, nominal GDP would be quite higher than real GDP. However, in case of deflation, real GDP would be higher than nominal GDP.
GDP vs GNP
GNP = GDP + Income earned by Indians outside India – Income earned by Foreigners within India
GNP = GDP + Net Factor Income from abroad (NFIA).
Changes in GDP Estimation
Change in the base year from 2004-05 to 2011-12.
Change in the GDP estimation from the GDP at Factor Cost to GDP at Market Prices
Change in the database for capturing economic activity from RBI's database to the MCA-21 database of the Ministry of Corporate Affairs. This database is used for two purposes:
Estimate the production of goods and services in the organised sector based upon the tax returns
Extrapolate the production of goods and services in the unorganised sector based upon the organised sector activity.
Drivers of Indian Economy
According to Expenditure method, GDP is calculated as C+G+I+ (X-M) where C denotes Private final consumption expenditure (PFCE), G denotes Government Final consumption Expenditure (GFCE), I denotes Investment, X denotes Exports and M denotes Imports. PFCE accounts for the highest contribution followed by Investment.
Table: Share of Sectors in Nominal GDP (per cent)
Sectors
2019-20(1st RE)
2020-21(PE)
2021-22(1st AE)
Total Consumption
71.7
71.1
69.7
Government Consumption
11.2
12.5
12.2
Private Consumption
60.5
58.6
57.5
Gross Fixed Capital Formation
28.8
27.1
29.6
Net Export
-2.5
-0.5
-3.0
Exports
18.4
18.7
20.1
Imports
21.0
19.2
23.1
GDP
100.0
100.0
100.0
Trends in India’s GDP & Growth Rates
Both Real GDP and Nominal GDP had registered consistent increases in terms of absolute value before 2020-21. Because of covid-19, both Real GDP and Nominal GDP contracted in 2020-21. However, both Real GDP and Nominal GDP have now come back to pre-COVID levels.
The Real GDP (GDP at base year prices) has increased from 133 lakh crores in 2020-21 to 144 lakh crores in 2021-22. Similarly, the nominal GDP (GDP at current market prices) has increased from 195 lakh crores in 2020-21 to 230 lakh crores in 2021-22.
Both Real GDP & Nominal GDP Growth rate had registered consistent decline before 2020-21. Because of covid-19, both Real GDP & Nominal GDP growth rates contracted in 2020-21. However, both Real GDP & Nominal GDP growth rate have now registered positive growth rates.
Trends in Gross Capital Formation
Gross Capital Formation is calculated as Gross fixed capital formation (GFCF) + Changes in stocks (increase in stocks of inventories) + net acquisition of valuables
Gross fixed capital formation: Creation of new assets, Machinery and Equipment, R&D and Increment in Cultivated Biological Resources
Changes in Stock/Inventories: Increase in Inventory value
Valuables: Valuables include precious metals & stones, antique, other art objects and valuables.
Trends in Gross Capital Formation (GCF)
Components
2010-11
2015-16
2019-20
1. Gross Fixed Capital Formation
Public: 8%
Public: 7.5%
Public: 7%
Private: 25%
Private: 21%
Private: 22%
2. Change in Stocks
4.5%
2%
1%
3. Valuables
2.2%
1.5%
1%
Total (1+2+3)
40%
32%
31%
Important Observations
There has been a decline in GCF in the last decade from 40% to 31%.
Share of Private Investment is higher than Public Investment.
Trends in Gross Domestic Savings
Trends in Gross Domestic Savings
Sector
2010-11
2015-16
2019-20
Household
24%
18%
20%
Private Corporate Sector
10%
12%
10.5%
Public
3%
1%
1%
Total (1+2+3)
37%
31%
31.5%
Important Observations
Gross Domestic Savings is contributed by the Household sector, Private Corporate and Public Sector.
Decline in Gross Domestic Savings in the last decade from 37% to 31.5%.
The Household Sector contributes the largest share of Savings in India.
The Household Savings is categorised into:
a) Net Financial Savings
b) Physical Savings
Note: Physical Savings of household sector account for the larger share in comparison to Net Financial Savings)
Important Observations
Share of the Agriculture sector has remained stagnant around 18%, except in 2020-21, when its share increased to 20%.
Amongst the sub-sectors in Agriculture, Crops account for the highest share.
Share of the Industrial Sector has steadily declined in the last decade from 32% to 25%.
Share of the manufacturing sector has remained stagnant at 16%-17% in the last decade.
Share of the services sector has increased in the last decade from 49% to 55%.
Contribution of Sectors to India's GDP
Table: Sectoral share in Gross Value Added at Current Basic Prices
(Percentage)
S. No.
Industry
2011-12
2012-13
2013-14
2014-15
2015-16
2016-17
2017-18*
2018-19"
2019-20
2020-21"
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
I
Agriculture, forestry & fishing
18.5
18.2
18.6
18.2
17.7
18.0
18.3
17.6
18.4
20.2
Crops
12.1
11.8
12.1
11.2
10.6
10.6
10.5
9.7
10.7
-
Livestock
4.0
4.0
4.1
4.4
4.6
4.8
5.1
5.1
5.2
-
Forestry and logging
1.5
1.5
1.5
1.5
1.5
1.5
1.4
1.5
1.3
-
Fishing and aquaculture
0.8
0.9
0.9
1.0
1.1
1.1
1.2
1.2
1.2
-
II
Industry
32.5
31.8
30.8
30.0
30.0
29.3
29.2
29.0
26.7
25.6
Mining and quarrying
3.2
3.1
2.9
2.7
2.3
2.3
2.2
2.2
1.9
1.6
Manufacturing
17.4
17.1
16.5
16.3
17.1
16.7
16.6
16.3
14.7
14.3
Electricity, gas, water supply & other utility services
2.3
2.3
2.5
2.5
2.7
2.5
2.7
2.6
2.6
2.7
Construction
9.6
9.2
8.9
8.5
7.9
7.7
7.7
7.9
7.4
7.0
III
Services
49.0
50.0
50.6
51.8
52.3
52.6
52.5
53.4
55.0
54.3
GVA at basic prices
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
Economic Recession in India
India has faced economic recession in 2020-21 for the first time in the last 41 years since 1979-80
Recession is defined as a fall in the overall economic activity for two consecutive quarters (six months) accompanied by a decline in income, sales and employment.
In independent India’s history, 5 such years of negative GDP growth were registered. They saw contraction of -1.2% (FY58), -3.66% (FY66), -0.32% (FY73), -5.2% (FY80) and (2020-21).
