Faint glimmer: On revival in industrial activity (The Hindu)

Mains Paper 3: Economy
Prelims level: Not much
Mains level: Highlights of the industrial activity

Context

• Industrial activity in the new financial year appears to have started on a healthier note than the trend witnessed in the last quarter of the previous fiscal, the government’s latest quick estimates show.
• Industrial output rose 3.4% in April, buoyed by a generally broad-based revival that saw electricity, mining and even manufacturing post faster growth compared to the listless performance witnessed in the January-March period.

Highlights of the industrial activity

• In fact, manufacturing output growth, which had decelerated sharply from the pace of 8.2% in October to a revised level of less than 0.1% in March, rebounded to a four-month high of 2.8%.
• A look at the use-based classification reveals that all six segments were in positive territory, with only infrastructure and construction goods marking a slowdown from both the earlier year and March levels and providing cause for some concern.
• The capital goods sector that serves as a closely tracked proxy for business spending intentions, posted a 2.5% expansion, snapping three straight months of contraction.
• The growth even in this key area trails the pace of 9.8% that was reported in April 2018 by a wide margin, and it would be premature to celebrate the single reading until a more abiding trend emerges in the coming months.
• Price gains measured by the Consumer Price Index (CPI) quickened to 3.05% in May, from April’s 2.99%, as prices of vegetables and pulses jumped by 23% and 10% respectively in urban areas, contributing to a bump-up in food inflation.
• The Reserve Bank of India had last week flagged the risks to the inflation trajectory from factors including spikes in vegetable prices and international fuel prices and marginally raised its CPI inflation projection for the fiscal first half to a 3% to 3.1% range.

Conclusion

• The inflation reading remains below the RBI’s inflation threshold of 4%, policymakers would need to keep a close watch on price trends, especially as global energy prices continue to remain volatile amid heightened geopolitical tensions in West Asia and uncertainty on the demand outlook owing to the ongoing China-U.S. trade spat.
• And while the monsoon is forecast to be normal this year, the actual rainfall and its spatial distribution will have a significant bearing on agricultural output and food prices.
• A fiscally prudent budget, with incentives to support the nascent industrial recovery, would surely tick several boxes at one go.

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Prelims Questions:

Q.1) With reference to India's external debt profile, consider the following statements:
1. NRI deposits form the highest component of India's external debt.
2. A large majority share of total external debt is in the form of long-term debt.
3. US dollar-denominated debt continued to be the largest component of India’s external debt.

Which of the statements given above are correct?
(a) 2 and 3 only
(b) 1 and 2 only
(c) 1, 2 and 3
(d) 1 and 3 only

Answer: A
Mains Questions:
Q.1) The tentative revival in industrial activity must be built on through prudent policy support. Comment.