15 Nov Industrial Output went down and Inflation going up : Not a good sign (GS 3, Economics, The Hindu, Indian Express)
News/ Context: The data of National Statistical Office shows that India’s industrial output fell 2.6% month on month basis In September. It happened even when the retail inflation marginally moved up to four 4.48% in October with the sharp rise in urban price trends. The growth of industry as shown by the Index of Industrial Production (IIP) for the month of August 2021 was 12% compare to the month of August in 2020. The pace of of growth dipping sharply to 3.1 percent in September 2021 in comparison to September 2020. The industry is blaming the supply side constraints for the moderation in industrial output.
Growth is affected: As per the phd Chamber of Commerce and industry for the Pradeep Multani, The shortage in raw material and higher commodity prices are impacting the production and overall growth of Index of Industrial Production (IIP). Industry is expecting that input prices might come down due to the cuts in fuel taxes.
The sharp decrement In the IIP growth is mainly because of base effect.
(what is base effect: This is to understand that when the base is high, the growth percentage will be coming as low. Similarly when the base is low the growth percentage will be coming as high. Because generally growth is calculated on the basis of percentage and the percentage whether will remain high or low very much depends upon the base.) But the sequential decline in the IIP growth is a cause of concern. The government has to go for demand stimulating economic policies so that consumer spending could be boosted. This is a crucial and essential driver to get a sustainable economic momentum in 2022.
We are witnessing that the activity in construction and Infrastructure has come down, which may not go good for rural demand and externalities related to this sector, because of the fact that it many labours working on the site of construction belongs to rural area and many raw materials which is used in construction are prepared in rural areas.
In the month of October the consumer price inflation moved to 4.48 % in comparison to 4.5% in September on the basis of year on year. While the urban parts of the country on the basis of consumer price index urban have experienced sharper jump from 4.5% in September to 5.04% in October.
Inflation in the food prices at the consumer label on the basis of consumer food price index has witnessed as 0.85% in October. It was marginally higher then 0.68 percent for the month of September. In contrast to this urban consumers have experience a higher rate of food inflation of 1.72 percent. The inflation in communication and transportation stood at 10.9%, whereas oil and fats have witnessed higher rate of inflation of 33.5% in October.
As per the ICRA chief economist Aditya Nayar, The sharp month on month rise of 2.3% in the food and beverages index was driven by the 14.2% spike in vegetable prices, a trend which is expected to persist in the ongoing month with the further rise in the prices of staples such as potatoes, onions and tomatoes. She also agreed that the fuel tax cuts announced recently might soften the November inflation.
The production in the automobile Sector fell 9% in September from a year ago. According to index of Industrial Production, the auto production slid for the second month in a row, declining 3.3% over other August output.
Way Forward: The government has to go for demand stimulating economic policies so that consumer spending could be boosted. The government needs to spend more to incentivise the supply side of the economy as well as to boost the demand side. This is a crucial and essential driver to get a sustainable economic momentum in 2022.
Md Layeeque Azam, Economics Faculty
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