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Subject: National Income Accounting(GDP)

  • Core industrial sector growth slows to 5.4% in July as fertilizer, steel, iron ore, oil output falls

    Why in the News

    Growth in India’s nine core industrial sectors slowed to 5.4% in July 2026 from 6% in June, according to official data released on 20 August 2026. The headline number is being held up by cement, electricity and a low-base rebound in iron ore and coal, at a time when the input industries feeding manufacturing and the domestic energy producers are contracting.

    What is the Index of Core Industries?

    1. About: The Index of Core Industries (ICI) measures the combined production performance of nine industries that supply inputs and energy to the rest of the economy, and is released monthly by the Ministry of Commerce and Industry.
    2. The nine sectors: Coal, crude oil, natural gas, refinery products, fertilizers, steel, iron ore, cement and electricity.
    3. New series: A new series of the index was released in July 2026 with 2022-23 as the base year, replacing the 2011-12 base year, and July’s reading is the second print of the revamped index.
    4. Break in comparability: Because of the base year change, a historical comparison on the new series is possible only up to June 2025.

    How did each of the nine sectors perform in July 2026?

    1. Cement: Growth hit 13.1% in July, a seven-month high, up from 11.1% growth in July of last year.
    2. Iron ore: Growth slowed to 29.5% in July from 44.5% in June, the biggest shift among the nine sectors.
    3. Electricity: The sector grew 9% in July, slower than the 11.4% recorded in June.
    4. Coal: Growth reached 7.6% in July 2026, an eleven-month high, against a contraction of 12.3% in July last year.
    5. Steel: Growth slowed to 2.9% in July, the lowest in the 14 months for which data exists on the new series, down from 5.6% in June.
    6. Refinery products: The sector grew 2.7% in July, snapping a three-month streak of contractions and delivering its best performance in nine months.
    7. Natural gas: The sector contracted 3.7% in July 2026, part of an unbroken run of contractions across all 14 months for which data exists.
    8. Crude oil: The sector contracted 5.3% in July 2026, also contracting continuously across the same 14 months.
    9. Fertilizers: The sector contracted 8% in July against a contraction of 3.3% in June, having grown 1.9% in July of last year.

    Why does the headline growth rate overstate the underlying recovery?

    1. The fastest growing sector is rebounding off a collapse: Iron ore’s 29.5% growth sits on a base in which the sector contracted 16.4% in June and 7.1% in July of last year.
    2. Coal’s eleven-month high has the same explanation: The 7.6% reading follows a 12.3% contraction in July last year, so the level of output has not necessarily exceeded its earlier peak.
    3. A truncated series hides the longer trend: With comparison possible only back to June 2025, a fourteen-month record is the longest statement the data supports about any sector.
    4. Composite growth masks divergence: July’s 5.4% was still the second-fastest reading in seven months, even as three of the nine sectors were in contraction.

    What explains the contraction in fertilizers and in domestic energy output?

    1. Monsoon transmission into fertilizer demand: The 8% fertilizer contraction is attributed to a deficient and patchy monsoon and the resultant lower levels of sowing, which cut the demand fertilizer plants produce for.
    2. A structural decline in domestic hydrocarbons: Natural gas and crude oil have contracted in every one of the 14 months for which data exists, which is a production trend rather than a monthly disturbance.
    3. Refining recovered while extraction did not: Refinery products returned to growth in July even as the crude oil that feeds refineries kept contracting, which widens the gap filled by imports.
    4. Steel weakness alongside cement strength: Steel growth fell to a fourteen-month low in the same month that cement growth hit a seven-month high, so construction activity is not translating into metal demand.

    “[2015] In the ‘Index of Eight Core Industries’, which one of the following is given the highest weight?

    (a) Coal Production

    (b) Electricity generation

    (c) Fertilizer production

    (d) Steel production

  • Temporary respite: On the June 2026 data for the Index of Industrial Production

    Why in the News

    India’s Index of Industrial Production (IIP) grew 7.3% in June 2026, its highest rate in 23 months, defying headwinds from the West Asia crisis and a deficient monsoon. The strength rests on a low statistical base and seasonal drivers rather than a broad based revival in demand, leaving government led capital expenditure as the only consistent engine still carrying growth.

    What is the Index of Industrial Production (IIP)?

    1. Publisher and purpose: The National Statistical Office (NSO), under the Ministry of Statistics and Programme Implementation (MoSPI), compiles and releases the IIP every month to track short term changes in the volume of industrial output.
    2. Sectoral composition: The index covers three sectors, mining, manufacturing and electricity, with manufacturing carrying the dominant weight.
    3. Use based classification: IIP output is also classified by end use into primary goods, capital goods, intermediate goods, infrastructure and construction goods, consumer durables and consumer non durable goods.
    4. Base year: The current series is based on 2011 12 prices, and the government has been working toward a revised base year series to better reflect the economy’s present industrial structure.

    What drove June’s industrial growth?

    1. Manufacturing push: Manufacturing accelerated on a dual boost from domestic and external demand, with consumer durables growth staying above 7% for a second straight month and non durable goods growth quickening to a six month high.
    2. Export demand: Commerce Ministry data showed merchandise exports growing 15.5% in June, pointing to external demand.
    3. Capital goods: The capital goods sector posted double digit growth, its eighth such month in the last ten.
    4. Electricity and mining: Electricity generation grew at its highest rate in 25 months due to a heat wave, and mining snapped a four month contraction streak.

    Why is June’s growth read as a temporary respite rather than a turnaround?

    1. Low base effect: Part of the headline growth reflects a low base, since industrial performance in June last year was the worst in nearly a year.
    2. Seasonal drivers: Electricity growth was tied to a heat wave and mining’s rebound is expected to reverse once the monsoon disrupts mining activity, meaning both gains are seasonal rather than structural.
    3. Single engine dependency: Capital creation led mainly by the government has been the only consistent growth engine in the post pandemic years, while exports and domestic consumption remain too uncertain to reliably carry growth on their own.

    What are the challenges to sustaining India’s industrial growth momentum?

    1. Deficient monsoon: Economists have warned that the monsoon shortfall will hit rural demand in the coming months, weakening consumer facing sectors again.
    2. Oil price volatility: Fading hopes of a ceasefire in West Asia are driving volatility in oil prices, sending uncertainty through import costs and the current account.
    3. Fiscal balancing act: Government capital expenditure must keep firing even as other fiscal pressures mount, straining the budget math that supports this single growth engine.
    4. Subdued private investment: Private sector capital formation has lagged behind government led investment, so a broad based private capex cycle has not yet taken hold despite improved capacity utilisation.
    5. Export vulnerability: Merchandise export gains remain exposed to tariff action by major trading partners, a risk that could reverse external demand support quickly.
    6. Consumption deferral: If uncertainty persists, planned investments would remain pending, purchases would be deferred, and savings would increasingly overshadow consumption, weakening demand further.

    Conclusion

    June’s industrial growth numbers do not indicate a durable turnaround. Government capital expenditure remains the only consistent engine, and it must keep firing while a deficient monsoon and volatile oil prices weigh on rural demand and input costs. If external conditions stay unfavourable, the government will need additional levers beyond capital expenditure to sustain the recovery.

    Back2Basics

    The Index of Industrial Production (IIP)

    1. It is a key macroeconomic indicator that measures short-term changes in the volume of industrial output across sectors like manufacturing, mining, and electricity.
    2. It is compiled and published monthly by the National Statistical Office (NSO) with a six-week time lag.

    Key Features and Updates

    1. Base Year: Updated to 2022-23 = 100, replacing the older 2011-12 series.
    2. Expanded Coverage: Now tracks 1,042 products across 463 item groups, incorporating broadened segments like gas supply, water supply, sewerage, and waste management.
    3. Core Industries: Eight core infrastructure industries (refinery products, electricity, steel, coal, crude oil, natural gas, cement, and fertilizers) make up over 40% of the total IIP weight.

    PYQ Relevance

    [UPSC 2012] In India the overall Index of Industrial Production, the Indices of Eight Core Industries have combined weight of 37.90%.

    Which of the following are among those Eight Core Industries? 1. Cement 2. Fertilizers 3. Natural Gas 4. Refinery products 5. Textiles

    Select the correct answer using the code given below: (a) 1 and 5 only (b) 2, 3 and 4 only (c) 1, 2, 3 and 4 only (d) 1, 2, 3, 4 and 5

    Answer: (c)

  • Do you agree with the view that steady GDP growth and low inflation have left the Indian economy in good shape? Give reasons in support of your arguments.

    India is projected to sustain GDP growth of 6.5% between FY28-30, positioning it as the world’s third-largest consumer market by 2026 and the third-largest economy by 2028. (UBS)

    Arguments Supporting the View (Indian economy in good shape)

    High GDP Growth – India remains the fastest-growing major economy. 7% in FY 2025.

    Moderating Inflation – Eg- Retail inflation fell to a historic low of 0.25% in October 2025, due to GST rate cuts

    Forex reserves at over $689 billion provide external stability.

    Fiscal Consolidation Path- Fiscal deficit targeted to reduce to 4.8% of GDP in 2025-26.

    Robust Financial Sector- Gross NPAs have declined from 9.11% (2021) to 2.8% (2025).

    Production-linked incentives (PLI) has raised India’s manufacturing attractiveness. Eg: Electronics exports at a record $38 billion in 2024-25. (32% increase)

    Arguments Against the View (Macro vulnerabilities persist)

    Jobless Growth –Service sector contributes 55% of GDP but employs less than 30% workforce

    High food inflation due to climate shocks, hurting the poor.

    Rural Distress due to weak agriculture real wages and uneven monsoons.

    Global slowdown, protectionism, and China’s dominance limit India’s merchandise exports.

    High Public Debt- General government debt remains around 82% of GDP (IMF, 2024), limiting fiscal room.

    The share of Gross Fixed Capital Formation (GFCF) was about 34.6% of GDP in 2023-24 and slipped to 29.61% of GDP in 2024, indicating weak investment.

    Way Forward

    Enhance R&D (2.5% of GDP), reduce logistics costs (PM Gati Shakti), and expand PLI schemes to boost manufacturing.

    Promote labour-intensive manufacturing (textiles, toys, food processing) and expand services exports (IT, GBS, health tourism).

    Improve ease of doing business, accelerate contract enforcement, and reduce regulatory uncertainty to crowd-in private capital.

    Strengthen FOREX buffers and expand rupee trade settlement

    Encourage domestic production of critical inputs (electronics, APIs, green tech) to reduce vulnerability to global shocks.

    As highlighted by the Economic Survey, India must prioritise blue-sky thinking and foster a virtuous cycle of investment to achieve Viksit Bharat@2047.

  • Define potential GDP and explain its determinants. What are the factors that have been inhibiting India from realizing its potential GDP?

    Potential GDP refers to the maximum sustainable output an economy can produce without generating inflationary pressure, when all resources are fully and efficiently employed.

    Determinants of Potential GDP

    Labour Force & Human Capital – Size, skill, and productivity of the workforce.

    Capital Formation – Investment in infrastructure, machinery, and technology.

    Technology & Innovation – R&D and digital transformation driving productivity.

    Institutional Quality – Governance, regulatory efficiency, and property rights.

    Total Factor Productivity (TFP) – Efficiency in using labour and capital together.

    Prevailing Inflation Rate – Persistent inflation distorts real GDP from its potential level.

    Global Conditions – Protectionism, trade restrictions, and geopolitical tensions. Eg- Tariff Wars

    Factors Inhibiting India from Realizing Potential GDP

    Low Female Labour Force Participation – FLFPR only 41.7% (PLFS) against global average of 48%

    Slow Capital Formation – GFCF at ~29.6% of GDP (2024) vs 34% in 2023.

    Skill Mismatch & Education Gaps – Only 4.7% of workforce formally skilled (NSDC).

    Infrastructure Bottlenecks – Logistics cost ~13% of GDP vs 8% in USA

    Weak Productivity Growth – Low TFP and informal sector dominance. (83% informal sector)

    Regulatory Cholesterol – Delays, compliance burden, weak contract enforcement.

    Way Forward

    Enhance Human Capital – Invest in education, healthcare, and skill development

    Accelerate Investment & Infrastructure Growth through faster project execution under PPP.

    Create safe workplaces, flexible jobs, and childcare support to tap women’s economic potential.

    Increase R&D spending to 2.5% of GDP (currently <1% of GDP) for productivity gains.

    To realize its potential GDP and Viksit Bharat 2047, India must shift from factor accumulation to productivity-driven growth

  • Explain the difference between computing methodology of India’s Gross Domestic Product(GDP) before the year 2015 and after the year 2015.

    Gross Domestic Product (GDP) is the total monetary value of all final goods and services produced within a country’s borders in a given period. GDP in India is calculated by the National Statistical Office (NSO).

    The post-2015 GDP methodology aims to provide a more accurate, data-rich, and globally comparable picture of India’s economy. To improve reliability, there is a need for greater transparency.

  • Consider the following statements

    Consider the following statements:

    1.Purchasing Power Parity (PPP) exchange rates are calculated by comparing the prices of the same basket of goods and services in different countries.
    2.In terms of PPP dollars, India is the sixth largest economy in the world.
    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

  • Which of the following pairs about India’s economic indicator and agricultural production (all in rounded figures) are correctly matched

    Which of the following pairs about India’s economic indicator and agricultural production (all in rounded figures) are correctly matched?
    1. GDP per capita (current prices): Rs 37,000
    2. Rice: 180 million tons
    3. Wheat: 75 million tons.

  • With reference to India economy, consider the following statements

    With reference to India economy, consider the following statements:
    1. The Gross Domestic Product (GDP) has increased by four times in the last 10 years
    2. The percentage share of Public Sector in GDP has declined in the last 10 years
    Which of the statements given above is/are correct?

  • In the context of Indian economy, consider the following statements

    In the context of Indian economy, consider the following statements:
    1. The growth rate of GDP has steadily increased in the last five years.
    2. The growth rate in per capita income has steadily increased in the last five years.

  • In terms of economy, the visit by foreign nationals to witness the XIX Commonwealth Games in India amounted to

    In terms of economy, the visit by foreign nationals to witness the XIX Commonwealth Games in India amounted to