[Editorial Analysis] Long haul ahead

Mains Paper 3: Economy
Prelims level: Index of Industrial Production
Mains level: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment


• Factory output continued to contract in July, albeit marginally slower than in June, reflecting the depressed economic conditions as the pandemic rages on.

• Quick estimates for the IIP show output across the three sectoral components of the index — mining, manufacturing and electricity — all shrank, dragging the overall index to a 10.4% year-on-year contraction.

Nowhere close to reversing momentum:

• While this is slower than June’s 15.8% shrinkage, a closer look reveals that the rebound in momentum witnessed in the fiscal first quarter’s last month — when the economy reopened and the contraction narrowed sharply from May’s 33.9% fall — has dissipated appreciably.

• The most telltale sign of this flattening is the more than halved pace of growth in the solitary use-based industrial activity of the IIP’s six product groups, in which output had turned positive in June.

• Growth in consumer non-durables — it includes essential household consumables — slid back to 6.7% from the preceding month’s 14.3%, betraying the abiding weakness in private consumption spending.

• The other five groups posted double-digit contractions, with consumer durables and capital goods shrinking 23.6% and 22.8%, respectively.

• If the trend in durables attests to the RBI’s evaluation last month that “private consumption has lost its discretionary elements across the board”, the capital goods data point to a dismal picture on the investment front.

• Demand-starved companies are operating their factories well below capacity.

• There is little indication that the protracted six-quarter slump in this key sector, which encompasses the plants and machinery that manufacturers order when expanding or starting new ventures, is anywhere close to reversing momentum.

Enacting demand supportive fiscal policies:

• Electricity generation, however, provides some relief, with the contraction narrowing to 2.5% in July from June’s 10%.

• A deeper look at the 23 subcategories of manufacturing shows that only tobacco products and pharmaceuticals posted expansions in July, with the latter benefitting from the increased global demand for medicines, including generic drugs, in the wake of the pandemic.

• The manufacture of pharmaceuticals, medicinal chemical and botanical products climbed 22% in July, making it the solitary product to post an expansion of 1.8% over April-July.

• Textiles and garment manufacturing, employment intensive segments shrunk to 14.8% and 28.7%, respectively.

• To be sure, the IIP data come with a lag of six weeks and a few more recent indicators give room for some guarded hope.

• For one, the latest IHS Markit India Manufacturing PMI survey-based outlook signals that the sector likely posted some expansion for the first time in five months in August.

• And auto makers reported growth in shipments of passenger vehicles to dealers last month in anticipation of festive season demand.

• Still, to help sustain any incipient revival, the Centre will need to enact demand-supportive fiscal policies or risk seeing the slowdown prolong.


• Demand-supportive fiscal policies alone can end the lockdown-induced slowdown.


Prelims Questions:

Q.1) With reference to the National Awards to teachers, consider the following statements:

1. The national level awards are given to teachers on Teachers’ Day to celebrate the unique contribution of some of the finest teachers in the country.

2. Final selection for National Awards to Teachers 2020 was made by Independent Jury at National level headed by retired Secretary, Department of School Education and Literacy, MHRD.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer: C

Mains Questions:

Q.1) How COVID 19 induced lockdown affected the economy as a whole? What are the challenges brought by it? Also discuss it’s the impact on GDP? What are the various steps were taken by the government recently?

Subscribe to Get Weekly updates

Get daily current affair video, detailed current affairs PPT for quick revision and Free One Liner PDF directly in your inbox. Subscribe now to get this month's one liner for FREE.