Election overhang

The impact of various factors on India's core infrastructure sectors and manufacturing activities, particularly in June and July 2023. The recent slowdown in state spending due to general elections, adverse weather conditions, and rising input costs affect overall industrial production and inflation outlook.

Core Infrastructure Sector Slowdown

• Election Impact on Spending: Production in India's core infrastructure sectors slowed down due to reduced state spending on public works following the general elections.
• Heatwave Effects: Extended heatwaves in northern and western parts of India further dampened economic activity, affecting industrial production.
• Decline in Key Sectors: Five out of eight core sectors saw a decline or slow growth, with overall core sector growth dropping to a 20-month low of 4%.

Sector-Specific Impacts

• Refinery Products and Electricity: Refinery products, which have the highest weight in the Index of Eight Core Industries (ICI), saw a 1.5% contraction, while electricity generation declined by 3.6% from May.
• Steel and Construction: Steel output dropped by 4% from May due to decreased construction activity amid heatwaves, leading to a YoY growth reduction to 2.7%.
• Coal Sector Growth: Coal was an exception, with output growth accelerating to 14.8% in June, up from 10.2% in May.

Manufacturing and Inflation Concerns

• Manufacturing PMI: The HSBC India Manufacturing Purchasing Managers’ Index (PMI) for July showed a slight easing in manufacturing activity, with the PMI dipping to 58.1 from 58.3 in June.
• Rising Input Costs: Significant increases in input costs for coal, packaging, paper, rubber, and steel led to manufacturers raising selling prices at the highest rate in almost 11 years.
• Inflation Outlook: The rising input costs indicate broader inflation pressures, posing a challenge for the Reserve Bank of India's Monetary Policy Committee in controlling inflation.

Mains Question:

Q. "Analyze the impact of election cycles, adverse weather conditions, and rising input costs on India's core infrastructure sectors and manufacturing activities. Discuss the challenges these factors pose for economic stability and inflation control, and suggest policy measures to mitigate their effects.