[op-ed snap] Faint glimmer: On revival in industrial activity

Mains Paper 3 : Effects Of Liberalization On The Economy, Changes In Industrial Policy and their effects on Industrial Growth |

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Nothing Much

Mains level : Data regarding revival in industrial activity


CONTEXT

The tentative revival in industrial activity must be built on through prudent policy support.

Background

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.

  1. Industrial output – Industrial output rose 3.4% in April, buoyed by a generally broad-based revival that saw electricity, mining and even manufacturing post faster growth .

2. Manufacturing output – 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%.

3. Positive growth – 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.

4. Capital Goods – Hearteningly, capital goods, a sector that serves as a closely tracked proxy for business spending intentions, posted a 2.5% expansion, snapping three straight months of contraction.

To be sure, 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.

Hiccups along the way

1.Rise in CPI –

  • 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.
  • While 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.

2. Monsson Dependence – 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.

Industrial Sector Updates – Industrial Policy, Ease of Doing Business, etc.
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