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Slowing down fast: Industrial growth

The downturn (decline; गिरावट) in industrial activity and the spike (sharp rise; वृद्धि) in retail inflation pose (present; प्रस्तुत करना) a policy challenge. Yet another indicator, worryingly, points to the Indian economy slowing down fast. Industrial growth was just 0.1% in February from the year-earlier period, the slowest pace (speed; गति) in 20 months. Industrial output had expanded (increased; बढ़न) by 6.9% in February 2018. Industrial growth, as measured by the index of industrial production, has been slowing down considerably in recent months, dropping to just 0.2% year-on-year in November. Manufacturing, which has a weight (proportion; अनुपात) of almost 78% in the index, continues to be the biggest drag (burden; बोझ), with output contracting by 0.3% as compared with an 8.4% jump in the year-earlier period. The largest contributor to the slowdown in February was the capital goods sector, which shrank (reduced; कम  होना ) by close to 9%, with the contraction (drop;गिरावट) widening from the preceding month’s 3.4%. That the revision in this closely watched proxy (indicator; संकेतक) for business spending plans has widened, from the 3.2% contraction reported last month, is striking. GDP grew by just 6.6% in the quarter ended December, the slowest pace in six quarters. Various institutions such as the Reserve Bank of India and the International Monetary Fund have been lowering their expectations for India’s growth in the coming quarters. With other economic indicators such as the purchasing managers’ index and high-frequency data like automobile sales also signalling weakening momentum (growth; गति), the overall scenario, when viewed along with the slowdown (decline; गिरावट) in industrial output, suggests that a turnaround (revival; पुनः प्रवर्तन) in economic growth is not in sight.

Retail inflation as measured by the consumer price index reached a five-month high of 2.86% in March due to the rise in food and fuel prices. While price gains still remain below the RBI’s stated inflation threshold (limit; सीमा) of 4%, the trajectory (course; कार्यप्रणाली ) is hardly bound (likely;संभावित ) to be reassuring. The RBI, which has cut interest rates at two successive policy meetings to help bolster (strengthen; मजबूती प्रदान करना) economic growth, is likely to be tempted to opt for (choose; चुनना) more rate reductions. While monetary easing (to reduce regulations; नियंत्रण कम करना) could be an easy solution to the growth problem, policymakers may also need to look into structural issues behind the slowdown. The high levels of troubled (unsettled;न चुकाया हुआ) debt in not just the banking sector but the wider non-banking financial companies are hurting credit markets, and unless these issues can be resolved, no amount of rate cuts would serve as an effective stimulus (incentive; प्रोत्साहन). To a large extent, the slowdown is due to investments in sectors that turned sour (did not make profits; मुनाफा न होना) as the credit cycle tightened (funds became scarce; धन दुर्लभ होना). In the fiscal year ended March, new investment proposals fell to a 14-year low, says the Centre for Monitoring Indian Economy. Easing interest rates without reforms may only help hide investment mistakes instead of fostering (promoting; बढ़ावा ) a genuine economic recovery.

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