THE GIST of Editorial for UPSC Exams : 29 MAY 2019 (Dismal signs (Indian Express))

Dismal signs (Indian Express)

Mains Paper 3 : Economy
Prelims level : ICRA
Mains level : Trend of anaemic economic activity

Context

•  The initial set of corporate results for the fourth quarter of 2018-19 seems to affirm the trend of anaemic economic activity.
•  Revenue growth fell to a six quarter low of 10.7 per cent in Q4FY19, down from 20.1 per cent in the previous quarter, shows rating agency ICRA’s analysis of 304 companies.
•  In the case of consumer linked sectors, the slowdown is more severe.
•  These numbers, indicative of a wider economic slowdown, are likely to weigh down GDP estimates for Q4FY19, to be released later this week by the Central Statistics Office (CSO). Pointing economic indicators
•  Leading economic indicators suggest a broad-based slowdown in household demand.  Rural wage growth, in both agricultural and non-agricultural occupations, continues to be subdued. Sales of two-wheelers and FMCG companies have been sluggish.
•  And while bank lending is up, it is unlikely to have compensated for the collapse in the lending by NBFCs, which is likely to have impacted household demand for consumer durables.
•  On the flip side, though, the softening of commodity prices did provide a marginal fillip to earnings.
•  But, despite this, the interest coverage ratio, which essentially measures a firm’s ability to repay its interest obligations, declined as interest costs grew at a much faster pace than profits.
•  With corporate earnings, investment as well as exports showing no signs of a revival, the new government clearly has its task cut out.

Reviving the growth

•  The challenge of reviving growth in the immediate term is more complicated than is being appreciated.
•  For one, the government has limited fiscal space. In the fourth quarter itself, government spending is likely to have been severely curtailed as it would have struggled to meet the fiscal deficit target owing to a shortfall in tax revenues.
•  This suggests that the new government will now have to scale down its revenue growth projects in the new budget, leaving it with little space for a stimulus.
•  And while the government can deviate from the path of fiscal consolidation, the move is likely to spook the bond market. This suggests that monetary policy may have to do the heavy lifting.

Conclusion

•  As inflation is likely to remain muted for the foreseeable future, the monetary policy committee, which meets in the first week of June, may oblige by cutting rates.
•  But the challenge is to ensure its transmission as lending rates tend to adjust quicker to monetary tightening than loosening.

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Prelims Questions:

Q.1) Which of the following countries form a part of the Malay peninsula?
1. Myanmar
2. Thailand
3. Malaysia

Select the correct answer using the code given below.
(a) 3 only
(b) 2 and 3 only
(c) 1, 2 and 3
(d) 1 and 3 only

Answer: C
Mains Questions:
Q.1) What are the challenges for new government to reviving the growth?