THE GIST of Editorial for UPSC Exams : 04 September 2019 (On the edge: On economic slowdown (The Hindu))

On the edge: On economic slowdown (The Hindu)

Mains Paper 3: Economy
Prelims level: Gross value added
Mains level: Economic slowdown process and its effect on economy

Context

  • India’s deepening slowdown has now left the economy on the verge of stalling. The latest estimates for GDP show year-on-year growth in the April-June period slid for a fifth straight quarter to 5%, the slowest pace in more than six years.
  • Disconcertingly, the mainstay of demand private consumption spending slumped to an 18-quarter low, with the expansion decelerating sharply to 3.1%, from 7.2% in the preceding quarter and 7.3% a year earlier.
  • Gross fixed capital formation (GFCF), a proxy for investment activity, grew a meagre 4%, less than a third of the 13.3% growth it posted 12 months earlier.

Key highlights about the RBI report

  • The RBI had, in its annual report released on Thursday, noted that indicators of GFCF had shown either moderation or contraction in the fiscal first quarter and pointed specifically to gross value added (GVA) by the construction industry, which government data revealed had eased to a 5.7% pace, from 9.6% in the year-earlier period.
  • With demand for manufactured products ranging from cars and consumer durables to even biscuits having sharply diminished, manufacturing GVA growth plunged to an eight-quarter low of 0.6%.
  • Save mining, electricity and other utility services and public administration and defence, all the five other contributors to overall GVA weakened from a year earlier.
  • RBI observed in its last monetary policy statement, consumer confidence gauged by its July survey has worsened appreciably, with 63.8% of respondents expecting discretionary spending to stay at the same level or shrink one year ahead.
  • The comparable reading in June 2018 was 37.3%.

Measure taken by government

  • That the government is cognisant of the gravity of the situation is evident from its recent slew of policy pronouncements including tweaks to investment norms to draw more Foreign Direct Investment, moves to relieve the debilitating sales slump in the auto sector and a sweeping consolidation of public banks.
  • Any beneficial impact from these measures will, however, take time to feed into the economy and time is a luxury that the faltering economy can ill afford, especially given the global headwinds.
  • With the farm sector still stuck in a low income trap and this year’s mercurial monsoon rains, leaving some parts flooded and others still facing deficits and engendering a shortfall in kharif sowing, rural demand is unlikely to return any time soon.
  • Also, with the RBI’s four interest rate reductions since the start of 2019 having, so far, failed to incentivise credit-fuelled consumer spending and business investment to any significant degree and with limited fiscal headroom to try and prime the pump with increased expenditure, big, bold structural reforms may be the only way out.

Conclusion

Prelims Questions:

Q.1) Consider the following statements about the Genome India Initiative:
1. The Department of Biotechnology (DBT) has initiated the project.
2. A genome is an organism’s complete set of DNA, including all its genes.

Which of the statements given above is/are correct?
a) 1 only
b) 2 only
c) 1 and 2 only
d) All the above

Correct Answer: C
Mains Questions:

Q.1) How far reaching reforms may be inevitable to keep the economy from stalling? Critically comment.