- Introduction – state the current figures on inflation & IIP.
- Discuss in detail how this double jeopardy has been unfolding in the recent times.
Immediately after the International Monetary Fund (IMF) lowered India’s growth projection to 6.8% in 2022-23, the Indian economy encountered the double blow of rising retail inflation in September 2022 and an unexpected Index of Industrial Production (IIP) contraction in August 2022. Combined consumer price index (CPI) rose to 7.41%. Consumer food price index (CFPI) has gone up to 8.6 % year-on-year, implying that food prices are driving the price rise.
WPI grew 10.7% in September 2022, lower than the 12.4% growth rate in August. While WPI is primarily meant to be a tracker of producer prices, the CPI is supposed to measure the prices facing an average household in the economy. So, marginal cooling down of the WPI inflation may indicate peaking of producer prices two months earlier. But the problematic part is that it remains at a higher double-digit level.
Around 77% of IIP tracks all kinds of manufacturing activities, a 0.8% contraction in August does not bode well for the economy. Manufacturing contracted by 0.7%, but a 3.9% contraction in mining also contributed to the overall decline. The monsoon rains affecting mining and construction, and a reduction in exports due to a global slowdown may be two probable factors contributing to this contraction.
While mining contraction significantly contributed to the slowdown, a comparison of month-on-month sectoral IIP growth rates reveals other aspects of this contraction. Primary goods have been contracting since the month of June; the capital goods index has been in the negative during July and August; intermediate goods production had gone negative in August; and construction goods experienced a marginal 0.6% growth in August after being in the negative zone in both May and June. There is, indeed, a general trend of slowdown and/or contraction across sectors in the last three months.
Sectoral month-to-month growth rates points towards a disturbing trend. It may or may not get reversed in the next few months, but ignoring it altogether may prove fatal in the longer run. Higher retail inflation, along with a slowdown in manufacturing, is likely to result in a rise in survival challenges for the lowest section in the income distribution. Therefore, it is necessary to provide basic food security by continuing and widening the scope of existing welfare schemes like the PM Garib Kalyan Yojana.