Indian Industrial Growth Slows Amid Infrastructure Strain and Climate Vulnerability

Indian Industrial Growth Slows Amid Infrastructure Strain and Climate Vulnerability

Why in News?

India’s Index of Industrial Production (IIP) recorded a worrying dip in June 2024, marking the lowest growth in the past 10 months at just 1.5%. The downturn is attributed to a significant contraction in mining and electricity production. Behind these figures lies a more complex story of infrastructure disruptions, erratic monsoon patterns, and the yet-unacknowledged impact of climate change on economic activity.

Introduction

Industrial growth in India remains intricately linked to the government’s expenditure on infrastructure. Despite robust performance in some sectors, the larger industrial ecosystem appears fragile and increasingly susceptible to external shocks—particularly climatic and environmental ones. The IIP’s latest data exposes this reality and urges a reevaluation of how India accounts for climate-related risks in its economic performance indicators.

The challenge is not merely a statistical one—it is structural, requiring reforms in how policymakers, statisticians, and economic agencies interpret and respond to emerging threats. The need to connect climate variability with industrial output disruptions has never been more pressing.

Industrial Growth Falters in June 2024

India’s IIP—a critical monthly barometer that tracks changes in the volume of goods produced in industrial sectors—grew at a sluggish rate of 1.5% in June 2024, its lowest in ten months. This figure represents a significant drop compared to previous months and paints a concerning picture for the economy, especially at a time when global uncertainties and domestic consumption are already under stress.

The slowdown was largely driven by sharp declines in mining and electricity output:

• Mining activity shrank by 8.7% in June 2024, a stark reversal from 10.3% growth in June 2023.

• Electricity output declined by 2.6%, down from 8.6% growth in June 2023.

Together, mining and electricity account for 22.3% of the IIP’s total weightage, making their performance crucial to overall industrial growth.

The Role of the Monsoon: Erratic and Uneven

A critical factor behind this sharp decline has been the early onset and erratic distribution of the southwest monsoon. While early rains were expected to aid agricultural and hydropower performance, they ended up causing widespread waterlogging in key mining belts, including:

• Odisha

• Jharkhand

• West Bengal

These states are significant contributors to India’s mining output, and waterlogging disrupted both mining operations and supply chains. In Ranchi, Jharkhand’s regional meteorological office reported 504.8 mm rainfall between June 1 and July 12, well above the normal average of 307 mm. Paradoxically, five districts in Jharkhand remained rain deficient, showing how climate variability impacts regions unevenly.

The excess rains and uneven rainfall damaged power infrastructure and disrupted logistics. These disruptions not only hampered mining operations but also affected the distribution of electricity, which further suppressed industrial performance due to subdued power supply and lowered demand from industries dependent on stable electricity.

Manufacturing Holds Ground, But Barely

Despite the gloomy data from mining and electricity, manufacturing showed some resilience, contributing to a modest industrial output increase of 3.9% in June, slightly higher than 3.5% in June 2023. However, this uptick is still insufficient to offset the declines in other key sectors.

The sector-wise growth was led by:

• Capital goods: 3.5%

• Intermediate goods: 5.5%

• Infrastructure goods: 7.2%

The relatively better performance of infrastructure-related manufacturing underscores how industrial growth in India continues to depend heavily on government-led infrastructure spending. This also reveals the absence of a self-sustaining industrial ecosystem driven by private investment or diversified demand.

The Invisibility of Climate in Economic Discourse

One of the central concerns raised in the recent commentary is the absence of climate attribution in economic reporting. Institutions such as the Ministry of Statistics and Programme Implementation (MoSPI) and the Reserve Bank of India (RBI) rarely incorporate climate-related disruptions in official economic narratives, whether in IIP data releases or GDP growth reports.

Instead, industrial slowdowns are typically framed using standard explanations:

• High base effects

• Input cost inflation

• Supply chain bottlenecks

• Global demand contraction

• Weak domestic consumption

While all these factors are valid, they often ignore underlying climate-induced disruptions, such as flooding of coal mines or damage to thermal power stations due to erratic monsoons. This creates a systemic blind spot in how India interprets and responds to economic stress.

The Case for Climate Attribution in Economic Data

Globally, institutions have begun recognising the economic risks posed by climate change. For instance:

• The European Central Bank (ECB) and the Bank of England (BoE) now map climate-related risks to financial stability.

• These institutions have started building climate risk frameworks into macroeconomic modeling, enabling more accurate forecasting and policy interventions.

In contrast, India’s progress has been slow. While the RBI’s Financial Stability Reports (FSR) now include a section on climate-related risks, this focus has not yet permeated into production-side data like the IIP or national accounts metrics.

The key challenge is scientific attribution—linking specific weather events (like a coal mine flood) to broader climatic shifts requires rigorous data modeling and probabilistic analysis. However, continued hesitation may prove costly in the long run.

Why Policymakers Hesitate

There are several reasons why Indian policymakers and data institutions have been slow to integrate climate attribution:

• Fear of politicising economic data: Associating climate change with economic downturns might fuel controversy and complicate political discourse.

• Data complexity: Climate attribution requires high-quality weather, industrial, and economic data sets, which are not always available or standardised in India.

• Institutional inertia: Traditional frameworks are slow to evolve, and interdisciplinary collaboration between meteorologists, economists, and statisticians remains weak.

Despite these challenges, the cost of inaction is rising. Failing to link environmental variables with economic performance risks blindsiding policy responses in future climate-related shocks.

Economic Vulnerability in the Face of Climate Change

India’s dependence on extractive and energy-intensive industries—like mining, power, steel, and cement—makes it especially vulnerable to climate-related shocks. This is particularly concerning given that:

• Mining belts are highly exposed to rainfall fluctuations.

• Thermal power plants are increasingly impacted by water availability and heat waves.

• Transport and logistics infrastructure is vulnerable to floods and landslides.

In such a context, not accounting for climate in economic forecasting could lead to significant under-preparedness for future disruptions, affecting everything from GDP forecasts to fiscal planning.

A Call for Reform: Integrating Climate and Economics

India must take steps to align its economic data systems with climate realities. This includes:

1. Integrating climate risk into IIP reporting: Monthly industrial data should include notes on climate disruptions (e.g., rainfall deviations, heat waves, etc.) and their likely impact.

2. Strengthening collaboration: Agencies like IMD (India Meteorological Department), MoSPI, and RBI must coordinate to share data and methodologies.

3. Building climate-economic models: Use AI and big data tools to link weather data with economic performance indicators.

4. Training economists and statisticians in climate science to facilitate better attribution and forecasting.

5. Investing in resilient infrastructure: Addressing the root cause of economic disruption through better drainage, resilient power grids, and adaptive mining practices.

Conclusion

India’s slowing industrial growth in June 2024 is more than just a blip—it is a warning signal. The IIP data, especially the sharp contraction in mining and electricity sectors, underscores how vulnerable the Indian economy remains to both natural and man-made disruptions. As climate variability becomes more frequent and intense, the failure to integrate climate attribution into economic policy frameworks could become a major blind spot for India’s economic future.

It is time for India to embrace a more holistic and integrated approach, one that recognizes the complex interdependencies between climate, infrastructure, and industrial performance. Only then can the country build a resilient, sustainable, and forward-looking industrial economy.

5 Key Takeaways

1. IIP growth hit a 10-month low of 1.5% in June 2024, driven by declines in mining (-8.7%) and electricity (-2.6%) production.

2. Erratic monsoon and waterlogging in eastern India led to disruption of mining operations and power infrastructure.

3. Current economic frameworks rarely attribute slowdowns to climate-related factors, focusing instead on generic economic explanations.

4. Global institutions like ECB and BoE have begun mapping climate risks, but Indian agencies are lagging behind.

5. India needs systemic reform to integrate climate attribution into macroeconomic reporting and policy design.