Dogged by inflation: On Price rise and policy measures

#GS-03 Economy

Context

The recent release of  Government’s Index of Eight Core Industries for May, and S&P Global’s survey-based Purchasing Managers’ Index (PMI) have shown some concerns regarding the growth of India’s manufacturing industries.

 

For Prelims

 

• Index of Eight Core Industries (ICI)– Released by Office of the Economic Adviser (OEA), Department of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry.
• The Eight Core Industries are Natural Gas, Coal, Refinery Products, Crude Oil, Cement, Electricity, Steel, and Fertilizers.
• Purchasing Managers Index- Survey based index. Valued from 0 to 100. Value above 50 is considered as expansion while below that is considered contraction.
• The output of Core industries grew by an average of 18.1%. However, Cement shrunk by 3.2% from preceding month.

 

For Mains

 

• Monetary Illusion aka Price Illusion – People viewing their wealth in nominal terms while ignoring inflation and reduction in the purchasing power of the currency.

 

Concerns

• PMI data shows that the price pressure is dampening the growth in manufacturing sector which fell to the slowest pace in the last 9 months.
• Inflation has reduced the confidence of companies to lowest in 27 months.
• A 95% of managers in PMI have blamed inflation for a lack of foreseeable change in production numbers from current year.
• However, a ray of hope is that there are reports of reduction in input lead times happening for the first time since the onset of the pandemic.