July 13, 2024

Lukmaan IAS

A Blog for IAS Examination

SLOWING MOMENTUM: ON PALPABLE SOFTENING IN ECONOMIC MOMENTUM

THE CONTEXT:  Official Index of Eight Core Industries for September and S&P Global’s Purchasing Managers’ Index (PMI) for the manufacturing sector for October, point to softening in economic momentum.

MORE ON THE NEWS:

  • Output growth in India’s eight core sectors slowed to a four-month low of 8.1% in September, from 12.5% in August, with the Index of Core Industries (ICI) dipping to a seven-month low.
  • Growth in cement production hit a six-month low of 4.7%, while fertilisers production rose 4.2%, the fastest pace in four months.
  • Coal production grew 16.1%, the second highest pace in at least 12 months, while Steel and Electricity rose 9.6% and 9.3%, respectively. Natural gas output rose 6.5%, the slowest uptick in three months, while refinery products were up 5.5%.
  • Only fertilizers registering a quickening in growth from the preceding month as farmers stocked up on the key agricultural input ahead of the rabi season.

 PURCHASING MANAGER’S INDEX(PMI):

  • It is an economic indicator which is derived after monthly surveys of different companies.
  • It is a survey-based indicator that is compiled and released each month by the Institute for Supply Management (ISM).
  • There are two types of PMI: Manufacturing PMI and Services PMI.
    • It shows trends in both the manufacturing and services sector.
    • A combined index is also made using both manufacturing PMI and services PMI.
  • The index helps in determining whether the market conditions, as seen by purchasing managers, is expanding, contracting or staying the same.
  • A PMI number greater than 50 indicates expansion and number less than 50 shows contraction.

CHALLENGES:

  • Dampening demand: Heavy rains in the final month of the southwest monsoon season, which resulted in 13% surplus precipitation for September. This likely contributed to decrease in demand and production for cement, electricity, and steel.
  • Contracted production: Production in all eight key infrastructure sectors contracted in September 2023, with the overall index declining 4.8% from August. Coal offered the silver lining: the year-on-year growth in output of the fuel eased only slightly to a still robust 16.1% pace, from August’s 17.9%, and posted just a 1.5% sequential contraction.
  • Unemployment: The increased unemployment rate when combined with the increase in population clearly shows that a far larger number of people are looking for work than in the past.
    • According to a recent survey: Only 4% reported adding staff in the manufacturing sector. This contributed to the slowest rate of job creation in manufacturing since April.

THE WAY FORWARD:

  • The Government should fast-track disinvestment of public sector units and meet the required revenue target. It would help to unlock the capital to garner resources for meeting the developmental priorities of the country and assist in capital formation.
  • To effectively reduce unemployment, it is crucial to empower the demographic dividend through skill development and job creation initiatives.

CONCLUSION:

India wants to emerge as a developed economy in the near future. It is well recognised that to bring this dream to fruition, it is important that the economy continues the high and resilient growth path in the years ahead as well.

PREVIOUS YEAR QUESTION:

Q) Is inclusive growth possible under market economy? State the significance of financial inclusion in achieving economic growth in India. (2022)

MAINS PRACTICE QUESTION:

Q) What do you understand by Purchasing Manager’s Index? How can it be used to assess the state of economy? Explain in the context of recent developments.

Source: Slowing momentum: The Hindu Editorial on palpable softening in economic momentum – The Hindu

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