Core Concerns, Pg8

Key Highlights:

• India's Index of Core Industries (ICI) growth slowed to 5.4% in July from 6% in the previous month.
• The Manufacturing Purchasing Managers’ Index (PMI) for July eased to its lowest level since August 2021, indicating weak domestic demand conditions.
• Growth in sectors like coal and refinery products was significantly influenced by a low base effect from the previous year.
• The domestic crude oil and natural gas sectors have consistently contracted for over 14 months, increasing India's import dependence.
• The United States is preparing to levy 100% tariffs on countries, including India, that import Russian oil, potentially burdening Indian exporters.
• Only the cement and electricity sectors showed robust growth in July, accelerating to 13.1% and 9% respectively.

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Detailed Insights:

• The ICI measures the performance of eight key infrastructure industries, which collectively hold a significant weight of over 40% in the Index of Industrial Production (IIP).
• The slowdown in ICI growth, despite being the second-highest in seven months, is concerning due to the underlying low base effect in several sectors.
• The Manufacturing PMI is a crucial survey-based leading economic indicator that reflects the health and activity of the private manufacturing sector.
• India's persistent reliance on crude oil and Liquefied Natural Gas (LNG) imports, marked by rising import volumes, exposes the economy to global price volatility.
• The proposed US tariffs on Russian oil imports, potentially reaching 100%, aim to exert pressure on nations like India, which has increased its Russian oil purchases due to discounted rates.
• The Ethanol Blended Petrol (EBP) Programme, targeting 20% ethanol blending (E20), aims to reduce crude oil import dependence and bolster energy security, but its impact on oil imports has not yet been substantial.
• The strong performance of the electricity sector (9% growth) and cement sector (13.1% growth) were notable exceptions amidst an otherwise moderating industrial landscape.

Key Concepts Involved:

• Index of Core Industries (ICI): A monthly index published by the Office of the Economic Adviser, measuring the production performance of eight core infrastructure industries, serving as a lead indicator for industrial growth.
• Manufacturing Purchasing Managers’ Index (PMI): A survey-based economic indicator reflecting the prevailing direction of economic trends in the manufacturing sector, with a reading above 50 indicating expansion.
• Low Base Effect: A statistical phenomenon where a large percentage change in a current period's data is observed due to an unusually low reference point (base) in the corresponding previous period.
• Ethanol Blending Programme (EBP): A Government of India initiative to mix ethanol with petrol, primarily aimed at reducing crude oil imports, enhancing energy security, and lowering vehicular emissions.