Revival Trend in Indian Industrial Activity

Why in news?

In India Industrial activity has been improved in terms of IIP and PMI.

What is the status of Indian Industrial growth?

• Industrial growth is measured by the government’s Index of Industrial Production (IIP) and the private sector Purchasing Managers’ Index (PMI).
• Both of these Indexes has been improved significantly in the months of Nov 2017 – Feb 2018.
• Growth in the IIP soared to 8.8% in November, the highest since October 2015, and stood at a slightly slower but still robust 7.07% in December, this growth was largely driven by the manufacturing sector.
• The PMI surged to a 60-month high of 54.7 in December 2017 and came in at 52.4 in January 2018.

How industrial activity has been revived?

• The November 2016 demonetisation had a major impact on industrial activity and the manufacturing sector was slowed down.
• Activity resumed thereafter, but was hit again by the prospect of the Goods and Services Tax and then its fallout.
• Industrial activity contracted in June because firms halted production to get rid of their stock in preparation for the GST.
• A combination of impending festive season and the re-stocking of inventory led companies to increase their activity thereafter, with a recovering global economy boosting exports, which further propelled industrial growth in November and December.
• There were other factors at play, such as companies getting increasingly comfortable with the GST regime.
• The government has also taken steps to ease the woes of exporters due to the input tax credit system.

What are implications of this revival?

• While the IIP is an output measure, the PMI is an indication of the activity at the input, or purchasing, level.
• If both show strong growth, the implication is an overall recovery in industrial activity and sentiments.
• Economic growth itself is expected to increase, with private sector analysts and economists saying there are signs of a recovery.
• It is also important to note that the IIP and the PMI measure only the formal sector.
• Several accounts say the informal sector, a very large segment of the economy that accounts for significant employment, is still recovering from the effects of demonetisation.
• This trend also implies that part of the recovery is based on global economic trends, any dip there will have a detrimental effect on India’s exports.

Source: The Hindu

Quick Fact

IIP

• The Index of Industrial Production (IIP) is an abstract number or ratio which measures the growth of various sectors in the economy.
• In India, IIP is a representative figure which measures the general level of Industrial activity in the country.
• Being an abstract number, it does not show volume of activity and only shows the magnitude which represents the status of production in the industrial sector for a given period of time as compared to a reference period of time.

PMI

• The Purchasing Managers' Index (PMI) is an indicator of the economic health of the manufacturing sector.
• The PMI is based on five major indicators such as new orders, inventory levels, production, supplier deliveries and the employment environment.
• The purpose of the PMI is to provide information about current business conditions to company decision makers, analysts and purchasing managers.