Growth in Industrial Output
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TOPIC: General Studies 3
- Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.
There were worries about economy slowing down especially after the introduction of GST and hence to bounce back above 7% in industrial production was a difficult task especially when the industrial sector was not showing any particular growth. However, industrial production growth zoomed to a 17 month high of 8.4% in November 2017. There were concerns about high corporate leverages in the economy supplemented by not enough gross capital formation. Now the gross fixed capital formation is likely to be increased by 4% and above and growth in capital goods by 9%. Manufacturing sector has shown growth rate of 10.2%. Thus, it can be said that ill-effects of demonetisation and GST driven problems are slowly wearing off.
Post demonetization and GST, there were continuous fears about not bouncing back but industry has shown a recovery and key factors of segments of industry responsible behind positive growth in industrial output are output of capital goods at 9.4%, consumer non-durables at 23%, Manufacturing of pharmaceuticals, medicines, chemical and botanical products has seen highest growth rate of 39.5%. Electronics and optical products have seen a growth of 29.1% and manufacture of transport equipment have shown a growth of 22.6%. Commercial vehicle sales have also surged. There is sharp increase of 13.5% in construction goods. It is interesting as construction scenario was not bright for a while and also real estate sector due to demonetization. Thus, data shows that there is positivity coming in economic growth in next few months.
However, there has been negative growth too in sectors such as Mining sector– 1.1%, electricity at 3.9%, output of primary goods at 3.2% and consumer durables at 2.5%.
Any other reason possible?
The wedding season during this quarter, period of beginning of holidays and celebrations where bulk of goods are produced and transferred. Hence the surge can also be due to it. Other reasons can be strong export growth and sharp pay-back from GST-related disruptions.
- Employment is the biggest challenge of government. Domestic growth in the industry was not yet visible as the IIP index was not picking up. Lack of sufficient industrial growth attributed to lesser employment opportunities. Now, with more output, there is going to be more employment.
- There are large number of vacancies in government institutions, government companies which are not yet filed up. But due to lack of skills, many of those remain unoccupied. Thus, there is an information asymmetry in the economy.
- The government is taking initiatives- Stand Up India, Mudra scheme, skill development, Make In India, clearance of FDI in ingle retail brand in automatic route to increase employment opportunities.
- Inflation will remain a challenge as it has gone above 5.2% due to increase in prices of vegetables and fuel and is going to impact the economic growth.
There should be a model called National Labour Employment Exchange. It will be along the lines of national stock exchange whereby people and firms register themselves on a national level declaring which skills they require and people will sell their skills in terms of labour hours. There may be need of unskilled labour too which can be made available through this exchange.
There have been structural reforms in the economy which has churned the entire economy. Demonetization has brought entire change in economy. GST introduction overhauled entire economy, integration of people with banking system through JAM trinity has increased people’s reach to avail banking services. Since, new economic developments are happening, even digitalization coming as part and parcel of people’s lives, there is visible higher economic growth. The government spending in infrastructure sector has brought in cheer and positive result. Thus, the government has to ensure that industries receive sufficient credit to prosper and bring domestic growth and development.
Connecting the dots:
- Industrial production index may not be an accurate indicator of manufacturing sector in recent times. Elaborate your thoughts on the same.