Dismal signs (Indian Express)
Mains Paper 3 : Economy
Prelims level : ICRA
Mains level : Trend of anaemic economic activity
- 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
- 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.
- 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.
Q.1) Which of the following countries form a part of the Malay peninsula?
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
Q.1) What are the challenges for new government to reviving the growth?