What’s behind the contraction in core sector output? (The Hindu)

Mains Paper 3: Economy
Prelims level: Core sector output
Mains level: Reduction in coal production affecting the core sector output

Context

• The index of eight core industries, believed to be a leading indicator of India’s GDP numbers, for September 2019 plummeted 5.2 per cent year-on-year in its worst show in over a decade.
• There weren’t any redeeming features in its break-down either, with seven of the eight critical inputs (save for fertilisers) in contraction mode.
• With this index occupying a 40 per cent weight in the Index of Industrial Production (IIP), the reading presages a continuation of the recessionary trends in IIP.

Reduction in coal production output

• Coal output was a key villain of the piece, registering a 20.5 per cent fall in September, after an over-prolific monsoon flooded Coal India’s largest mines.
• Dwindling coal supplies had a knock-on effect on electricity output, trimming it by 3.7 per cent year-on-year.
• The extended monsoon also played spoilsport to construction activities, pushing steel and cement output into negative territory for the month.
• One can expect some reversal in these components in the coming months if the South-West monsoon decides to call it a day.
• It would be a mistake to dismiss this slump in core industries as wholly attributable to Acts of God; there’s a significant man-made component to it as well.
• Take coal supplies for instance. Despite sitting on prolific reserves and rich cash coffers, Coal India has been unable to meet its monthly production targets with any degree of reliability in recent times with accidents, strikes and weather events taking a frequent toll on its operations.
• After it managed just a 7 per cent increase in its output to 606 million tonnes, over 40 per cent of India’s coal demand (991 million tonnes) from power generators, cement and sponge iron makers for FY19 had to be met by imports.

Land acquisition for exploration of mines

• The miner has been complaining of difficulties in land acquisition to explore new mines, it is doubtful if the recent move to open coal mining to FDI will really help.
• While thermal power producers have been hamstrung by fuel issues, renewable energy players have recently run into new roadblocks in the form of State discoms threatening to cut tariffs.
• With significant unutilised capacity and many players lined up before the NCLT, the generation sector is in poor shape, with the parlous financial state of the discoms impacting both offtake and transmission.

Way forward

• Most of the debate around India’s economic woes today circle around demand-side problems arising from slow job creation, low income growth and the lack of animal spirits in the private sector.
• But the stalling output of industrial feedstock goes to show that, should the demand miraculously pick up, the supply side is far from well-geared to meet it.
• To address the bottlenecks, the Centre may need to set aside its penchant for big-bang reforms and get its hands dirty hammering out solutions to micro-level problems in infrastructure in conjunction with the State governments.

  Online Coaching for UPSC PRE Exam

  General Studies Pre. Cum Mains Study Materials

Prelims Questions:

Q.1) With reference to the International Atomic Energy Agency (IAEA), consider the following statements:
1. It is the world's central intergovernmental forum for scientific and technical co-operation in the nuclear field.
2. Its headquarters is located at Vienna, Austria.

Which of the statements given above is/are correct?

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: C
Mains Questions:
Q.1) What are the major reasons behind the reduction in coal production in India? What are the major challenges to land acquisition for exploration of mines?