Why in News: The Index of Industrial Production (IIP) for June 2025 recorded a 10-month low growth rate of 1.5%, signaling concerns over the health of the industrial sector.
Context:
The sharp contraction was driven by declines in mining (–8.7%) and electricity output (–2.6%), compared to strong performances in June 2024.
Key Factors Behind Sluggish Industrial Growth (June 2025)
1. Heavy Monsoon Rains
- Flooding in mining states (Jharkhand, Odisha, Bengal) disrupted production.
2. Mining Sector Decline
- Output shrank by –8.7%, major drag on overall growth.
3. Electricity Output Down
- Fell by –2.6%, limiting industrial activity.
4. Weak Manufacturing Growth
- Grew just 3.9%, unable to offset losses.
5. Dependence on Govt Spending
- Growth seen mainly in capital & infra goods, driven by public projects.
6. Lack of Climate Attribution in Official Narratives
Govt bodies like MoSPI and RBI cite:
- Base effects
- Input cost fluctuations
- Weak global/domestic demand
Climate-linked disruptions (e.g., mine waterlogging) not acknowledged in formal reports like IIP/GDP data.
Global Best Practices Missing
- Institutions like the European Central Bank and Bank of England now integrate climate risk in macroeconomic monitoring.
- India’s RBI has begun including climate-related risks in Financial Stability Reports, but not yet in production-side metrics like the IIP or GDP.
Why Integrate Climate Risk in Macroeconomic Monitoring?
1. Direct Impact on Production: Climate events (like mining area waterlogging) significantly disrupt industrial output and growth.
2. Improved Policy Alignment: Linking climate disruptions to economic data ensures better-targeted, resilient industrial and infrastructure planning.
3. Global Best Practices: Leading institutions (ECB, Bank of England) already include climate risk in macroeconomic frameworks.
4. Avoid Blind Spots: Ignoring climate attribution causes under-preparedness and misaligned policies, risking economic stability.
5. RBI’s Initiatives: RBI acknowledges climate risks in financial stability; this must extend to production-side metrics like IIP and GDP.
6. Growing Climate Threats: As climate events intensify, integrating climate resilience into economic planning is critical for sustainable growth.
Conclusion:
As climate events become more frequent and severe, India must adopt this approach to protect its economy and align with global best practices.
UPSC Relevance:
GS Paper 3 (Economy and Environment): Understanding the impact of climate change on economic growth, industrial productivity, and financial stability.
Mains Practice Question:
Q.”Discuss the need for integrating climate risk into India’s macroeconomic monitoring framework. How can this integration enhance economic resilience and sustainable development?”