SLOWING DOWN FAST: INDUSTRIAL GROWTH
16, Apr 2019
Prelims level : Economics Mains level : GS-III Technology, Economic Development, Bio diversity, Environment, Security and Disaster Management
Why in News?
- The downturn in industrial activity and the spike in retail inflation pose a policy challenge
- Another indicator, worryingly, points to the Indian economy slowing down fast.
- Industrial growth, as measured by the index of industrial production, has been slowing down considerably in recent months, dropping to just 0.2% year-on-year in November Manufacturing, which has a weight of almost 78% in the
- index, continues to be the biggest drag, with output contracting by 0.3% as compared with an 8.4% jump in the year-earlier period. The largest contributor to the slowdown in February was the capital goods sector, which shrank by close to 9%,
- Various institutions such as the Reserve Bank of India and the International Monetary Fund
- have been lowering their expectations for India’s growth in the coming quarters.
- With other economic indicators such as the purchasing managers’ index and high- frequency data like automobile sales also signalling weakening momentum
- The RBI, which has cut interest rates at two successive policy meetings to help bolster economic growth, is likely to be tempted to opt for more rate reductions
- While monetary easing could be an easy solution to the growth problem, policymakers may also need to look into structural issues behind the slowdown. The high levels of troubled debt in not just the banking sector but the wider non-banking financial companies are hurting credit markets, and unless these issues can be resolved, no amount of rate cuts would serve as an effective stimulus.
- To a large extent, the slowdown is due to investments in sectors that turned sour as the credit cycle tightened. Easing interest rates without reforms may only help hide investment mistakes instead of fostering a genuine economic recovery.
Index of Industrial Production (IIP)
- Index of Industrial Production (IIP) is an index which helps us understand the growth of various sectors in the Indian economy such as mining, electricity and manufacturing.
- IIP is a short-term indicator of industrial growth till the results from Annual Survey of Industries (ASI) and National Accounts Statistics (Eg: GDP) are available.
- The base year of the index is given a value of 100. The current base year for the IIP series in India is 2011-12
- Index of Industrial Production (IIP) is released by the Central Statistics Office (CSO) of the Ministry of Statistics and Programme Implementation. IIP is published monthly.
- Gross Domestic Product (GDP) is a broad measurement of a nation’s overall economic activity. GDP is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period
- GDP includes all private and public consumption, government outlays, investments, additions to private inventories, paid-in construction costs and the foreign balance of trade.