Excellent study material for all civil services aspirants - begin learning - Kar ke dikhayenge!
SHARE:
Feb 2021 - CPI Inflation and IIP bring relief
Read more on - Polity | Economy | Schemes | S&T | Environment
- Economy's double boost: India’s industrial
production rate rose to 1.04% in December 2020, reversing November's
contraction and regaining pre-Covid levels, while consumer inflation (measured by
CPI-inflation) reduced to a 16-month low of 4.06%, becoming a twin respite for
the economy.
- Inflation issue: The declining inflation will allow the RBI (central bank) to keep interest rates low to support the economic recovery that is underway, though more rate cuts are not feasible for the moment. So now, there is some comfort in both the IIP (Index of Industrial Production) growth number and CPI (consumer price index) inflation for December and January, respectively. Meanwhile, the NSO (National Statistics Office, MoSPI) has projected GDP to contract 7.7% in FY21.
- Is industery recovering: The IIP touched 135.9 in December 2020, rising above the pre-Covid, February 2020 level of 134.2. But sectoral classification shows a patchy recovery. Many segments are still struggling. Fourteen of 23 manufacturing subsectors reported a contraction in December. Manufacturing and electricity grew 1.6% and 5.1%, respectively, while mining contracted 4.8% in December. Capital goods - an indicator of investment - grew 0.6% in December. Consumer durables production, an indicator of urban demand, witnessed the sharpest growth of 4.9% while consumer non-durables expanded 2%.
- A bad 2020: In the first nine months of FY21, India’s factory output shrank 13.5%, compared with 0.3% growth in the year-ago period. After rising in September and October, factory output shrank in November. The statistics office revised the contraction in November to 2.09% from 1.9% earlier. The improvement in the IIP in December relative to November benefitted from a favourable base effect, and was broad-based. The September and October uptick was due to a combination of festive and pent-up demand and the recovery is still fragile. The ongoing recovery needs sustained policy support.
- New Budget: The February 1, 2021, budget proposed a strong fiscal boost to the economy, sharply raising capital spending to Rs 5.54 lakh crore from the expected Rs 4.39 lakh crore in FY 21. The Economic Survey 2020-21 released in Janaury 2021 expected GDP to expand 10.5% in FY22. Data suggest the economy gained pace in January - goods and services tax (GST) collections touched an all-time monthly high of Rs 1.19 lakh crore and mechandise exports rose 5.37% year-on-year in the month.
- Good news: A sharp fall in inflation of vegetables and food items more than compensated for higher fuel prices, driving down overall consumer inflation in January. Food inflation fell to a 20-month low of 1.89% from 3.41% in December. Fuel and light inflation hit a 10-month high of 3.87% in January. A strong base effect in vegetable prices will keep food inflation low over the next six to nine months. The inflation is at the Reserve Bank of India’s target level – 4% with a 2% band on either side.
- MPC stance: The stance of monetary policy may change to neutral, in the August 2021 review or later, only after there is greater confidence related to the economic revival. Core inflation, a measure of demand pressures, remains elevated. Core inflation in January 2021 has remained at the same level as the previous month at 6.5% but is notably higher than 4.2% in the corresponding month last year.
- Knowledge centre: The Index of Industrial Production (IIP) is an index which shows the growth rates in different industry groups of the economy. It is a key economic indicator of manufacturing sector of the economy. It is made up of (a) Mining (14.372472 % weight), (b) Manufacturing ((77.63321 %), and (c) Electricity (7.994318 %) sectors. The eight core industries include coal, crude oil, natural gas, refinery products, fertilisers, steel, cement and electricity. These are called core because of their impact on general economic activity as well as other industrial activity. These eight industries comprise 40.27% of the weight in the IIP. The IIP can also be seen as made up of (a) Primary goods (34.04%), (b) Capital goods (8.22%), (c) Intermediate goods (17.22%), (d) Infrastructure/ Construction goods (12.33%), (e) Consumer durables (12.83%) and (f) Consumer nondurables (15.32%). The change in the base year to 2011-12, which happened in 2017, was the ninth revision of base year of the all-India IIP since the beginning of its dissemination, with the previous ones being 1937, 1946, 1951, 1956, 1960, 1970, 1980-81, 1993-94 and 2004-05. The IIP is the only measure on the physical volume of production. The Annual Survey of Industries (ASI) is the main source of long term industrial statistics while the IIP is a monthly indicator based on items and factories selected from ASI.
COMMENTS