Editorials/Opinions Analysis For UPSC 06 July 2024

CONTENTS

1. Growing Inequality
2. Strengthening Momentum in the Key Industrial Sectors

Growing Inequality

Context:

The Indian economy needs to create over 25 million jobs in the next five years to employ all those currently unemployed. The government has claimed that the economy grew at a robust 8% last year based on GDP. However, even if this growth rate is accurate, it has not translated into sufficient job creation, given the prevailing unemployment rates.

Relevance:

GS3- Inclusive Growth

Mains Question:

The government has claimed that the economy grew at a robust 8% last year based on GDP. However, it has not translated into sufficient job creation, given the prevailing unemployment rates. Comment. (15 Marks, 250 Words).

Recent Unemployment Data:

• According to the latest official statistics, the unemployment rate for those aged 15 and above may have decreased from 4.2% in 2021 to 3.1% in 2023, but this reduction does not align with the rapid 8% GDP growth.
• The gap between the wealthy and the poor has significantly widened over the past two decades. Particularly in the last decade, official statistics show a stark rise in wealth inequality.
• Currently, about 1% of India’s population owns 40% of the country’s wealth. This disparity is concerning for any democratic society and state, posing risks to national stability.
• This phenomenon is often described as “K-shaped” inequality, where the income or consumption for a select few rises while it decreases for a large portion of the less affluent population, resembling the two diverging arms of the letter ‘K’.
• Government economists also assert that the administration has established sustained and rapid economic growth, purportedly leading to widespread happiness. However, the true impact of these claims will be evident in the next three years.
• The recent election results cast doubt on these claims, which government experts and the media have promoted, dubbing India the “fastest-growing large economy in the world.”
• The electorate, however, seems unconvinced. This is evidenced by the ruling party’s substantial loss of seats in the Lok Sabha, forcing the party to rely on two regional parties to maintain power.

Potential Decline in Growth:

• The government often claims that the 8.2% GDP growth for 2023-24 builds on the strong 7% growth in 2022-23, though the methodology behind these calculations remains undisclosed.
• Over the last two years, India’s growth has been driven by a significantly large budget deficit used to fund massive government capital expenditure.
• However, this growth has not been supported by structural investments in the industrial, agricultural, and service sectors.
• It is noteworthy that the GDP growth rate fell from 8% to 3.8% in the fourth quarter of 2019-20. Similarly, the GDP growth rate for 2015-16 was about 8% compared to the previous year.
• Each financial year is divided into four quarters: April 1-June 30, July 1-September 30, October 1-December 31, and January 1-March 31.
• In the pre-COVID-19 quarter (January 1, 2020 to March 31, 2020), GDP growth declined to an annual equivalent rate of 3.4% compared to the same period in the previous year.
• Therefore, the 8.2% growth reported by the Finance Ministry for 2023-24 seems like a short-term spike. It is doubtful whether this growth can be sustained in 2024-25. Indeed, those who analyze serious quantitative economics expect growth to decline further.

Call for a New Economic Strategy:

• Over the past decade, government economists have frequently advocated for the “next generation of reforms” to spur national economic growth.
• Moreover, in agriculture, 92% of jobs are in the unorganized sector, while in industry and services, 73% of jobs are in small- and medium-sized informal sectors. Only 27% of jobs are provided by the government and formal private sector combined.

Conclusion:

Therefore, India urgently requires a new long-term economic strategy. This task is particularly challenging due to the lack of a cohesive majority in Parliament and lack of economists who can provide candid advice to relevant ministers.

Strengthening Momentum in the Key Industrial Sectors

Context:

The data for May from the eight core infrastructure sectors indicate a slowdown in broad industrial activity, attributed to a heatwave that increased power consumption in homes, offices, and factories for fans and cooling systems. Only coal and electricity generation saw double-digit output growth, with increases of 10.2% and 12.8%, respectively, according to provisional data from the Index of Eight Core Industries released by the Ministry of Commerce and Industry on June 28.

Relevance:

GS3-

• Infrastructure
• Growth and Development

Mains Question:

India needs to strengthen momentum in the key industrial sectors. Discuss in the context of recent trends witnessed in the Index of Eight Core Industries. (10 Marks, 150 Words).

Core Sector Growth:

• Core sector growth refers to the rate of increase in output or production from the core industries of an economy over a specified period, typically measured annually or monthly.
• It is calculated by combining the growth rates of individual industries, weighted according to their importance in the overall Index of Core Industries (ICI).

Index of Eight Core Industries (ICI):

• The Index of Eight Core Industries (ICI) is compiled and released monthly by the Office of the Economic Adviser (OEA), Department for Promotion of Industry and Internal Trade (DPIIT), and Ministry of Commerce & Industry.
• The ICI reflects the performance and vitality of India’s industrial sector through various components:

1. Coal: Production of coal, excluding coking coal.
2. Electricity: Generation of electricity from thermal, nuclear, and hydro sources, and imports from Bhutan.
3. Crude Oil: Total production of crude oil.
4. Cement: Production in both large and mini plants.
5. Natural Gas: Total production of natural gas.
6. Steel: Production of alloy and non-alloy steel.
7. Refinery Products: Total refinery production.
8. Fertilizers: Production of urea, ammonium sulphate, calcium ammonium nitrate, complex grade fertilizers, single superphosphate, and more.

Weightage of Core Industries:

The current weightage of the eight core industries is as follows:

• Petroleum Refinery Products: 28.04%
• Electricity: 19.85%
• Steel: 17.92%
• Coal: 10.33%
• Crude Oil: 8.98%
• Natural Gas: 6.88%
• Cement: 5.37%
• Fertilizers: 2.63%

Reporting and Usage:

• The ICI for a given month is released with a one-month lag on the last day of the following month, approximately twelve days before the release of the Index of Industrial Production (IIP) for the same reference month. The base year for the current series of ICI is 2011-12, aligning with the base year for the IIP.
• The ICI is extensively used by policymakers, including the Ministry of Finance, other ministries and departments, banks financing infrastructure projects, the Reserve Bank of India (RBI), and the Railway Board.

Current Trend in ICI:

• Crude oil, fertilizers, and cement production decreased compared to the previous year, while output growth slowed in natural gas, refinery products, and steel.
• The heatwave notably impacted economic activity in northern India, leading to afternoon breaks at construction sites and daily peak power demand at the Northern Regional Load Despatch Centre consistently reaching around or above 75 gigawatts.
• Demand for cement and steel weakened due to reduced construction activity, with both materials also showing sequential declines in output.
• The year-on-year decline in fertilizer production for the fifth consecutive month in May raises concerns about ongoing weakness in the rural agriculture sector. However, a significant increase in May’s index number for fertilizers from the revised April reading offers some hope.
• Official data for the core sector and the Index of Industrial Production, which the core sector influences by over 40%, suffer from the drawback of being released with a delay of more than a month.
• In contrast, the private sector’s survey-based HSBC India Manufacturing Purchasing Managers’ Index (PMI) for June indicates a rebound in factory activity from May’s heatwave-induced three-month low.
• June’s PMI reading of 58.3 was 0.8 percentage points higher than May’s 57.5, and HSBC India noted that this figure was “comfortably above its long-run average.”
• The survey reveals that manufacturers increased output and purchasing to meet robust demand and stepped up hiring at the fastest pace seen in over 19 years of data collection.
• However, this surge in job creation and demand was accompanied by significant increases in staff expenses and material and transportation costs, prompting manufacturing companies to raise their selling prices by the greatest extent in over two years.

Conclusion:

This inflationary trend, along with a decline in survey respondents’ overall confidence in future output to a three-month low, indicates that the economy still faces challenges. Policymakers have the opportunity to use the upcoming Union Budget to implement policy adjustments that could help boost momentum in key industrial sectors.