ECONOMY

GDP growth slides to 5%, slowest in six years; Govt says more boosters coming

Data showed that the growth has slowed down in five out of eight sectors, reflecting the widespread weakness in the overall economy.

Weak manufacturing and consumption numbers dragged the country’s GDP growth to a 25-quarter low of 5 per cent in the first quarter (April-June) of the current fiscal, data released by National Statistical Office (NSO) Friday showed.

Sectorial Growth :

-        Growth rate of Gross Value Added (GVA), which is GDP minus net product taxes, fell to 4.9 per cent.

-        Nominal GDP growth was recorded at 8.0 per cent.

-        Manufacturing growth slumped to 0.6 per cent.

-        Agriculture, forestry and fishing sector recorded a growth rate of 2.0 per cent.

-        GVA growth for the construction sector also slowed to 5.7 per cent in April-June.

-        Electricity and power generation grew by 8.6%.

-        Private Final consumption increased by 3.1% growth rate.

Reasons Behind it:

-        RBI in its annual report of 2018-19 suggested that recent deceleration could be in the nature of a soft patch mutating into a “cyclical downswing”, rather than a “deep structural slowdown”.

-        It suggested that broad-based cyclical downturn is underway in several sectors — manufacturing, trade, hotels, transport, communication and broadcasting, construction and agriculture.

-        Slowdown is being faced across vehicles sales, FMCG goods sales etc.

-        There is an investment decline by Private. Government investment has also declined by 30%.

-        Chief Economic Adviser Krishnamurthy Subramanian has attributed reasons to both endogenous and exogenous factors.

-        Exogenous factors are global headwinds due to deceleration in developed economies, Sino-American trade conflict etc.

Future scope and its effects:

-        Declining household savings and lower buoyancy in government revenue will leave little scope for fiscal policy to provide momentum.

-        Monetary policy can provide impetus through more rate cuts.

-        GDP growth rate could go higher from third quarter onwards due to low base effect.

-        Government had come out with its stimulus plan including a reduction of taxes, improvement of liquidity in the banking sector, increased government spending on auto and infrastructure, and accelerated refunds of goods and services tax (GST) to provide momentum.

-        Collapse of private consumption demand is the real cause of concern.

Reference: https://indianexpress.com/article/business/banking-and-finance/gdp-growth-contracts-5-per-cent-govt-says-more-boosters-coming-5952721/

 

Big bank reform: 10 merged into four for scale and growth

The Centre Friday unveiled a mega amalgamation plan, the third in a row, that merged 10 public sector banks into four larger entities with board-level governance reforms aimed at improving banks’ financial health and enhancing their lending capacity to support growth.

-        It was followed by an announcement of equity infusion worth Rs. 55250 crore.

 

 

Reasons:

-        Better to amalgamate than to privatize the banks.

-        It will support the target of 5 trillion $ economy.

-        It will help in banks scaling up their scale.

-        Fund infusion in the merged entity will provide growth capital enabling the bank to enhance lending.

-        Government said that profitability and business of the earlier merged banks have improved.

-        Improve scale of operations.

-        Help their competitive positions in markets like Corporate and retail where presence in not high.

-        Scale will allow them to invest in technology too.

Effects:

-        Slow down in credit from merged banks in the short term.

-        Improve in the efficiency in the long term.

-        It is bad timing. Economy is reeling under slowdown and needs infusion of liquidity.

Governance Reforms in Banks:

-        Provided greater autonomy to their boards.

-        Provided flexibility to fix sitting fee of independent director.

-        Provided longer term of directors in the management committee of boards.

Reference: https://indianexpress.com/article/business/banking-and-finance/big-bank-reform-10-merged-into-4-for-scale-and-growth-5952743/

 

ENVIRONMENT

Australia downgrades outlook for Great Barrier Reef to ‘very poor’

The long-term outlook for Australia’s Great Barrier Reef was downgraded to “very poor” for the first time on Friday by the official agency charged with managing the world heritage site.

Reasons:

-        Rising Sea temperature.

-        Run off of agricultural pollutants into Reef.

-        Expansion of Coal mining and export industry near the reef area.

-        Global climate change

About Great Barrier Reef:

-        World's largest coral reef system.

-        The reef is located in the Coral Sea, off the coast of Queensland, Australia. 

-        The Great Barrier Reef can be seen from outer space and is the world's biggest single structure made by living organisms.

Reference : https://www.thehindubusinessline.com/news/world/australia-downgrades-outlook-for-great-barrier-reef-to-very-poor/article29299157.ece