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‘’Paper 4-GS-III, Topic: Indian Economy & issues relating – The revised IIP shows India may have been overstating the industrial slowdown in its economy

To overcome the weaknesses, the IIP is being made more dynamic

    What you need to know:

  • Index of Industrial Production (IIP), a critical economic indicator, has of late become a source of concern sometimes unmerited over the credibility of India’s statistics. The bellwether high-frequency indicator is a key input into making and assessing policies, particularly those pertaining to the manufacturing sector, inflation, interest rates and the low of credit in the economy. But, in the past few years, the month-on-month IIP has shown excessively low, and even negative growth, which subsequently turned out to be out of sync with the actual manufacturing output growth measured through the Annual Survey of Industries (ASI). The survey for a financial year comes with a lag of about 24 months.

   The theoretical aim of the IIP:

  • It is to capture the direction and the trend of industrial production in the country, not the absolute value of industrial production. Its chief utility is as an early indicator of turning points in the economy. The IIP has been failing in serving this purpose. The reason being that it was measuring industrial output using baskets of production items and producing entities that had remained unchanged since 2004-05. The standard procedure followed was that a list of items was constructed in the base year and for each item the producing entities were identified. This structure was frozen.
  • The index was constructed with the output figures received month over month from the baskets of items and entities fixed in the base year. If an entity shut down, its output fell to zero. But since the basket was frozen no new entity could be taken in place of the zero-output one.

   A more dynamic index:

  • Naturally, the IIP growth acquired a certain directional bias, which impaired its usefulness. To overcome the weaknesses, the IIP is being made more dynamic. First, the Central Statistics Oice has updated its base year to 2011-12. The revision, the ninth such exercise since the original base year choice of 1937, is aimed at capturing the changes that have taken place in the industrial sector since 2004- 05. New products have been included in the items basket, and those that have lost their relevance deleted. Renewable energy, for example, has been included in the electricity index.

   Source: Hindu

‘’Paper 4-GS-III, Topic: Issues relating to Agriculture and Cropping – A free market in agriculture can be the best antidote to crisis facing our farmers

A bumper farm crisis

   What is important to know:

  • Farmers in some States are regretting their abundant yields this year as the prices of agricultural commodities have crashed. Chilli farmers in Andhra Pradesh and Telangana, tomato growers in Karnataka, and toor dal cultivators in Maharashtra are at the centre of a severe crisis that has witnessed prices fall by more than half in a matter of just weeks.
  • Some speculate that high commodity prices last year caused farmers to respond by boosting production, which in turn led to the present price crash. Whether it is the wholesale mandis where farmers sell their agricultural produce, or retail outlets where consumers buy them, price fluctuations are common. But whether such fluctuations can be explained as being due to mindless crop cultivation, as some speculate, is not as certain.
  • For one, in the consumer market, commodity speculators usually dampen price fluctuations by managing supply according to consumer demand. For instance, when the supply of grains is abundant, speculators do not flood the market with all their stock but instead hoard the grains and sell them later when supply turns scarce. Thus, even if farmers engage in mindless grain production, speculators usually save the day for consumers by preventing steep rises and falls in grain prices.

   Price fluctuations:

  • Second, in the wholesale market, speculators can save farmers from similar price fluctuations by paying a competitive price for their produce even when there is abundant supply. Grain traders, to return to our previous example, who want to hoard supply expecting higher grain prices in the future would be willing to pay a better price to farmers today. This comes not out of compassion for farmers, but purely out of competition with other grain traders.
  • When farmers are free to sell their produce to any trader they want, it is traders paying the best price who get hold of it. Farmers can also expect a more predictable price for their produce each season, reflecting stable consumer prices, thus preventing mindless cultivation. Such competition though is precisely what is missing from the Indian agricultural scene where the supply chain is broken.
  • Red tape, including limits on stocking agricultural products, has prevented the growth of a robust market for commodity speculation. The result is lack of investment in infrastructure like that of cold storage; about 40% of agricultural produce in India is wasted because of it.

   Source: Times of India

 

‘’Paper 3-GS-II, Topic: India & its neighborhood relations – Ranil Wickremesinghe hails Beijing’s connectivity project

Says Sri Lanka will leverage its strategic location to become Indian Ocean hub

   Illustration:

  • Sri Lanka will leverage its strategic location and connectivity to become the hub of the Indian Ocean, Prime Minister Ranil Wickremesinghe said at the recently concluded Belt and Road Forum in Beijing. “The Belt and Road Initiative (BRI) will provide the much needed hard and soft connectivity in the Indian Ocean required for rapid economic and social development,” he said, days after Prime Minister Narendra Modi concluded his visit to the island.

   Big powers’ interest:

  • It is Sri Lanka’s location in the Indian Ocean that draws bigger powers like India and China, looking for a strategic advantage not just for trade but also for security.
  • In his address in Beijing, Mr. Wickremesinghe pointed to the various Chinese-funded projects in Sri Lanka, such as the Hambantota Port, Mattala airport and the southern expressway, and said the BRI complemented the island nation’s efforts to build advanced infrastructure.
  • The country is also strengthening financial connectivity by setting up an offshore financial centre in the Port City in Colombo, he said, referring to the massive, upcoming development project, initiated as part of the BRI.

   President’s intervention:

  • Though it was expected that the Prime Minister would finalise a pending agreement on the Hambantota Port while in Beijing, President Maithripala Sirisena intervened and ensured that the controversial deal was not inked on this trip, the widely-read Sunday Times here reported.
  • The Hambantota agreement, to further develop the port in the southern town and build an investment zone nearby, has encountered considerable resistance both within the government, and from opposition forces.
  • New Delhi has been keenly watching Colombo’s engagement with Beijing, and has at times even risen concern over what it thought might endanger India’s interests. Even during his recent visit, Mr. Modi reportedly enquired about the status of Chinese projects when he met former President Mahinda Rajapaksa, a known ally of Beijing.

Source: The Diplomat