In slow mode: on manufacturing and inflation data (The Hindu)

Mains Paper 2: Economy
Prelims level: Inflation
Mains level: Economic growth and development

Context

•  Manufacturing activity in the country continues to remain becalmed.
•  The latest Index of Industrial Production data show that output across the broad sector expanded 1.3% in January, a clear loss of momentum from the 3% pace in December and a drastic slowdown from the 8.7% growth seen in January 2018.
•  Overall, industrial output growth slumped to 1.7%, from 2.6% in December, and 7.5% a year earlier, as production in 12 of the 23 industry groups that comprise the manufacturing sector shrank from a year earlier.
•  These are quick estimates that are likely to be revised. But the fact that key job-creating industries, including textiles, leather and related products, pharmaceuticals, rubber and plastic products, and motor vehicles, reported contractions hardly bodes well for the real economy.

Key highlights on manufacturing and inflation data

•  A look at the use-based classification of industries also gives little cause for cheer.
•  Capital goods, a closely watched proxy for business spending plans, contracted 3.2%, a telling contrast with the 12.4% expansion posted 12 months earlier.
•  A sustained revival on this vital front may still be some time away.
•  A recent survey by IHS Markit of business activity expectations, conducted over two weeks in the latter half of February, shows that Indian businesses plan to curb outlays on hiring and capital spending, with sentiment on capex at a one-year low.
•  The growth in consumer durables output was an anaemic 1.8% (7.6% in January 2018), another clear sign that spending on consumption of non-essentials remains in search of favourable winds.
•  If the IIP poses cause for concern, retail inflation data hardly provide much reassurance. While price gains measured by the Consumer Price Index accelerated to a four-month high of 2.57% in February.
•  It is the persistent deflationary trend in the prices of some farm items that is deeply disquieting, reflecting as it does a collapse in pricing power in the agrarian heartland.
•  Vegetables, fruits and pulses and products all posted negative rates of inflation from a year earlier, of –7.69%, – 4.62% and –3.82% respectively.

Conclusion

•  While urban consumers may cheer the increased affordability of vegetables and fruits, rural demand for manufactured goods will remain depressed unless there is a meaningful turnaround in the farm sector’s economic fortunes.
•  With Saudi Arabia committed to deepening its production cuts in order to keep crude oil prices well-supported, it appears unlikely that India’s fuel and energy costs will stay soft for much longer.
•  Political parties sure to open the spending spigot in a bid to woo voters, inflationary impulses will quicken.
•  With growth slowing and inflation still comfortably within the Reserve Bank’s 2%-6% target range, monetary policy makers would feel justified in pressing ahead with one more interest rate cut at their meeting next month.

Online Coaching for UPSC PRE Exam

General Studies Pre. Cum Mains Study Materials

Prelims Questions:

Q.1) Consider the following statements.
1. Buddhist themes have been wall painted in Ajanta.
2. The rock shelters and caves of Bhimbetka host paintings of geometric patterns.
3. Bagh caves are renowned for mural paintings.

Select the correct answer using the codes below.
a) 1 only
b) 1 and 3 only
c) 2 and 3 only
d) 1, 2 and 3

Answer: D

Mains Questions:
Q.1) Describe the effects of manufacturing, inflation data give monetary policy makers room for an interest rate cut.