Corporate Investment Slowdown
**1. Latest Data **
- Industrial Growth: IIP at 9-month low (1.2%)
- Private Investment: Gross Fixed Capital Formation (GFCF) grew only 35% (FY20-FY23)
- Policy Paradox: Despite corporate tax cuts, public capex push & accommodative monetary policy, private investment remains sluggish.
2. Core Problem: Demand-Investment Nexus
| Concept | Key Insight |
|---|---|
| Demand Deficiency | Weak consumer demand → Low capacity utilization → Firms delay expansion |
| Profit-Investment Gap | Strong corporate profits (post-tax cuts) ≠ Increased investment |
| Wage Stagnation | Hiring/wage growth lagging profits → Subdued consumption (per Eco Survey 2024) |
3. Why Policy Tools Failed
| Policy Measure | Intention | Limitation |
|---|---|---|
| Corporate Tax Cuts | Boost investible surplus | No uptake due to low demand visibility |
| Public Capex | "Crowd in" private investment | Time lags, import leakage, low job creation |
| Monetary Easing (RBI) | Cheap credit | Ineffective without demand (Keynes’ liquidity trap) |
**5. Solutions: Demand-Led Revival **
- Short-term:
- Fiscal stimulus: Direct income support (e.g., PM-KISAN expansion), urban employment schemes.
- Labor-intensive projects: MGNREGA-type interventions for manufacturing.
- Long-term:
- Export push: Leverage PLI schemes, FTA diversification (e.g., UAE, Australia deals).
- Structural reforms: Ease of doing business, supply chain resilience (PM Gati Shakti).
7. Govt. Initiatives (Connect to Solutions)
| Scheme | Potential Role | Current Limitation |
|---|---|---|
| PLI Schemes | Boost manufacturing exports → Demand creation | Slow rollout; sectoral imbalances |
| PM Gati Shakti | Address supply bottlenecks → Reduce costs | Long gestation period |
| PM-SVANidhi | Stimulate informal sector demand | Scale too small for economy-wide push |
Index of Industrial Production (IIP)
**Core Definition **
- What it is: A prime short-term indicator measuring the volume growth of industrial output in the economy.
- Purpose: Tracks monthly trends in industrial activity compared to a fixed base year, serving as an early signal before detailed annual surveys.
Key Facts & Concepts:
-
Compiling Authority: Central Statistical Organisation (CSO), Ministry of Statistics and Programme Implementation (MoSPI).
-
Frequency: Released monthly (usually with a 6-week lag).
-
Base Year: 2011-12 = 100 (Updated from 2004-05 in 2017).
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Interpretation:
- IIP = 116 → 16% growth since 2011-12.
- Positive Growth → Industrial Expansion; Negative Growth → Contraction.
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Coverage (Sectoral Weights - Broad Sectors):
Sector Weight (%) Key Components Manufacturing 77.63 Durable & Non-Durable Goods, Capital Goods Mining 14.37 Coal, Crude Oil, Natural Gas, Minerals Electricity 7.99 Generation from Thermal, Hydro, Nuclear, Renewables -
Calculation Methodology:
- Type: Quantum Index (Measures physical volume, not value).
- Formula: Laspeyres' Formula (Weighted Arithmetic Mean of Production Relatives).
- Laspeyres' Formula Simplified:
IIP = (Σ (Current Period Quantity * Base Year Price) / Σ (Base Year Quantity * Base Year Price)) * 100 - Handling Value Items: For items reported in value terms (e.g., Machinery), production figures are deflated using Wholesale Price Index (WPI) Base 2011-12 to remove price effects and get real volume growth.