Indian Economy — Planning, Growth & Development

GS Paper: GS Paper III | Subject: Economy

Prelims

First IIP print under new 2022-23 base series (earlier: 2011-12)
April 2026 IIP growth: 4.9% YoY
Capital goods: +16% | Consumer durables: +4.3% | Consumer non-durables: +2.8%
4th sector added: Water supply, sewerage & waste management (2.02% weight)
Electricity category expanded to "Electricity & Gas Supply" — weight ↑ 7.99% → 10.87%
Manufacturing weight: 76.06% (down from 77.63%)
Mining & quarrying weight: ↓ 14.37% → 11.05% (significant drop)
Government intends to move to chain-linked framework for more frequent weight updates
Ministry: Ministry of Statistics & Programme Implementation (MoSPI)

RBI Monetary Policy Committee (MPC) began its 3-day meeting (decision due Fri, June 5); policy repo rate widely expected to be held at 6.25% (a vocal minority sees a hike to defend the rupee)
Rupee fell >6% vs the US dollar over the past year
REER (Real Effective Exchange Rate) — rupee's value vs a basket of 40 currencies, weighted by trade — fell below 96 in April, the lowest since September 2003
RBI Governor Sanjay Malhotra called the rupee undervalued
India's forex reserves ~$686 billion
REER = real (inflation-adjusted) effective exchange rate; <100 ⇒ currency seen as undervalued

Why revised: Old 2011-12 base did not capture India's structural shift — rise of services, value-added manufacturing, declining share of raw material extraction
Key structural story: Mining weight fell sharply → India moving away from primary extraction. Water/waste mgmt added → infrastructure services gaining weight in industrial activity
Chain-linked indexing: Current fixed-base indexes become outdated quickly; chain-linking means weights update more frequently → more accurate real-time picture of industrial health
Resilience but not broad-based: Capital goods surge (+16%) reflects public capex; but consumer goods lagging suggests cost pressures (oil supply chain disruption from US-Israel-Iran war) are hurting household demand
UPSC angle: IIP is a short-term indicator of industrial activity. Distinguish from GDP (output vs. value-added), Index of Industrial Production vs. Annual Survey of Industries. Chain-linking used in developed economies — India adopting global best practices

Undervalued ≠ weak: A sub-100 REER means the rupee is cheap in real, trade-weighted terms — which aids exports — even as the nominal rupee-dollar rate hits record lows. The two can move in opposite directions
Policy dilemma: A rate hike would defend the rupee and curb imported inflation but hurt growth; a hold supports growth but leaves the rupee exposed → classic external-stability vs. growth trade-off for the MPC
Reserves as buffer: ~$686 bn reserves give RBI room to smooth volatility, but burning reserves to defend a level is costly; better to let REER, not the nominal rate, guide intervention
Global context: Capital flows out of emerging markets as US rates stay elevated → pressure on the rupee is partly external, not just domestic
UPSC angle: REER vs NEER, currency (under/over)valuation, RBI's exchange-rate management, impossible trinity, forex reserves adequacy