indian-economy-industrial-growth-shrinks-in-august

Industrial growth shrink in August by 1.1%, after a gap of 26 months, reinforcing fears of a Slowing economy and deteriorating consumer sentiment. Current trend in industrial production:

  • Industrial production, as measured by the index of industrial production (IIP) had grown 4.8% August 2019.
  • Data released by the statistics office showed April-August 2019 factory output growth at 2.4% well below 5.3% for the same period in 2018.
  • IIP growth has been lowest in the last 81 months and first contraction after June 2017.
  • Production of consumer non-durables, a barometer for the rural economy, rose 4.1% in August but that of consumer durables, demand for which is more urban-centric, shrank 9.1%. 
    • Production of capital goods, an indicator of investment activity, contracted 21%.
  • Two of the three key constituents of IIP-manufacturing and electricity contracted 1.2% and 0.9%, respectively while mining growth was 0.1%.
  • India's passenger vehicle sales slumped 23.7% in September, the 11th straight month of declines.
Reason for the Current Slowdown:
  • Indian economy is presently facing a structural growth slowdown originating from declining household savings rate, and low food inflation and agricultural growth.
  • Low agricultural growth is feeding into low agricultural and non-agricultural wage growth in rural areas.
What is IIP?
  • IIP is calculated by the Central Statistical Organization (CSO). It is published every month keeping a gap of six weeks.
  • Index of Industrial Planning (IIP) is an index showing the growth of different industrial sectors over a period of time. 
  • The industrial sectors include mining, electricity, and manufacturing.  
How is IIP calculated?
  • The base year on which IIP is calculated is 2011-2012. 
  •  For calculating IIP, CSO takes into account 682 items. 
  • Each item included in the basket is given appropriate weight. 
  • Weight is determined on the basis of gross value added (GVA) from the industrial activity.
  •  The weights are considered in order to capture the different economic activities which needs to be reflected while measuring the performance of the entire industrial sector
Importance of IIP:
  • It shows economic momentum at the moment affecting the capital market and money market. 
  • IIP is also an important indicator for the Reserve Bank of India when framing its monetary policy.
Also read: Industrial growth declines to a 20 month low Agricultural: Tool to Revive Indian Economy