• UGI USER
  • Aug 05, 2024
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ECONOMIC SLOWDOWN AND INFLATION PRESSURES PERSIST IN INDIA

Why in the news?

India faces economic slowdown with core sector growth slowing to a 20-month low and rising inflation driven by increased input costs. Manufacturing activity eased, raising concerns for the Reserve Bank.

source:slideshare

About Economic Slowdown Post-Election:

  • Core Sector Performance: June’s industrial output showed a slowdown, hitting a 20-month low growth of 4%.
  • Impact Factors: State spending decline post-election and prolonged heat waves impacted industrial activity.
  • Sector Specifics:
    • Refinery products: First contraction in five months, down 1.5%.
    • Electricity: 3.6% decline from May’s peak, YoY growth slowed to 7.7%.
    • Steel: Output decreased by 4% MoM, YoY growth down to 2.7%.
    • Coal: Output growth accelerated to 14.8% from 10.2% in May.

Manufacturing Activity

  • PMI Data: HSBC India Manufacturing PMI for July decreased slightly to 58.1 from 58.3 in June.
  • Cost Pressures: Significant rise in input costs led to the highest increase in selling prices in nearly 11 years.

Inflation Concerns

  • Broader Inflation: Rising input costs for coal, packaging, and steel signal persistent inflationary pressures beyond food.
  • RBI’s Challenge: The Reserve Bank of India faces pressure to address inflation amid broadening price pressures.
What is Inflation ?

  • Definition: Rate of increase in prices over time.
  • Measure: Reflects rising cost of living; can be broad or specific.
  • Impact: Indicates price increases for goods/services.
  • India’s Context: Significant due to economic disparities and large population.

Key ways to measure inflation in India:

Consumer Price Index (CPI):

  • Measures retail price changes for consumers’ goods and services.
  • Base Year: 2012.
  • Used by the Monetary Policy Committee (MPC) to control inflation.
  • Variants: CPI-IW, CPI-AL, CPI-RL, CPI-UNME.

Wholesale Price Index (WPI):

  • Tracks price changes at the wholesale level.
  • Includes primary articles, fuel, power, and manufactured goods.
  • Base Year revised to 2011-12 in 2017.

Producer Price Index for Manufacturing (PPIM):

  • Measures price changes for manufactured goods at the producer level.
  • Not explicitly detailed in the provided context but relevant for understanding production inflation.

About Hongkong and Shanghai Banking Corporation (HSBC) India Manufacturing PMI:

  • Compiled by: S&P Global from 400 manufacturers’ responses.
  • Purpose: Measures mo nth-over-month economic activity in manufacturing.
  • Calculation: Based on new orders (30%), output (25%), employment (20%), delivery times (15%), stock levels (10%).
  • Types: Manufacturing PMI, Services PMI, and a composite index.
  • Headline PMI: Above 50 indicates expansion, below 50 contraction.
  • Difference from IIP: PMI is more dynamic, while IIP covers a broader industrial sector.
  • India’s PMI: Produced by IHS Markit, surveys 500 manufacturing companies.
  • Significance: Helps predict economic trends, guide production decisions, and inform investors.

Associated Article:

https://universalinstitutions.com/inflation/