Jatin Verma’s Current Affairs Magazine (September, 2019) Visit:- www.jatinverma.org 1 2 Note: Our magazine covers important current affairs from all the important sources referred by UPSC CSE aspirants- The Hindu, Indian Express, PIB, RSTV, LSTV, Economic & Political Weekly and Frontline magazine and other journals. Since we do not want to compromise on quality of facts & analysis, the magazine might run into some extra pages. We assure you that we have tried our best to make this magazine the “one stop solution” for your current affairs preparation for UPSC CSE 2020. 3 FOCUS ARTICLES Economic Slowdown India’s gross domestic product (GDP) growth rate slowed to a six-year low of 5% in the first quarter of the 2019-20 financial year, led by a dramatic slowdown in the manufacturing sector, according to GDP data released by the National Statistical Office (NSO). ● The growth of Gross Value Added (GVA) stood at 4.9% in the first quarter of the financial year 2019- 20, also the slowest in six years. ● Manufacturing sector grew at an anaemic two-year low of 0.6% in the first quarter of 2019-20, down from 12.1% in the same quarter of the previous year. ● Automobile Sector has as well reported a high double-digit decline in their sales in August as it continued to reel under one of the worst slowdowns in its history. ● Agriculture sector also saw a dramatic slowdown in growth to 2% from 5.1% over the same period. ● Real estate sector was also highlighted by the slowdown in its growth rate to 5.7% in the first quarter of this financial year, compared with 9.6% in the same quarter of 2018-19. ● Electricity and power generation, which is a leading indicator across the world, however grew by 8.6%, a good sign of green shoots towards higher growth. ● FMCG Sector - Parle-G, among the most recognizable brands in India, recorded a massive drop in sales recently Nature of slowdown Slowdown in the Indian economy is contributed by structural problems and cyclical downswing. ● Structural change represents the fundamental changes that occur in the basic features of the economy over a long period. Structure of the economy therefore means the occupational structure, sectoral distribution of income, industrial pattern, composition of exports, saving- GDP ratio etc. ● Cyclical economic slowdown is a part of the business cycle having its peaks and troughs. The economy will be moving in cycles with periods of peak performance followed by a downturn and then a trough of low activity. The liquidity crisis in the economy could be a cyclical issue. According to RBI report current economic conditions are a result of cyclical downswing, with several structural problems which need to be addressed. The structural factors contributing to the slowdown are evident from the fact that the successive rate cuts by the Central Bank have not yielded the desired results. Reasons of Slowdown Internal Factors ● Implementation of Goods and Service Tax (GST) - High cost of compliance being prohibitive and complicated for the small scale manufacturers and traders, caused some hiccups to the Indian Economy. ● Demonetization - According to a US-based National Bureau of Economic Research, demonetisation lowered the GDP growth rate as a result of artificial liquidity crunch thereby impacting MSMEs and the rural economy adversely. ● Liquidity Crisis: Liquidity crisis led to crisis in almost all sectors including manufacturing, real estate and automobile sector. ● NBFC Crisis: The slowdown in the economy was further aggravated by the NBFC crisis triggered by the IL&FS default. 4 ● Gross fixed capital formation is down to levels before FY05. As income growth is lower, consumption is compressed or only maintained at the expense of savings. ● Decline in Rural Wage Growth - According to State Bank of India’s Ecowrap report, the real rural wage growth has plunged from 14.6 per cent in FY14 to merely 1.1 per cent in FY19. ● High Unemployment rate: The Periodic Labour Force Survey (PLFS) of the National Sample Survey Office (NSSO) showed the unemployment rate in the country at 5.3% in rural India and 7.8% in urban India, resulting in an overall unemployment rate of 6.1%, at a 45-year high. ● Policy Facilitated Decline - Policy push like National Electric Mobility Mission, adoption of BS-VI etc.have caused cutting down of production with sales of passenger vehicles dropping to a near two- decade low and mass layoffs across several industries. ● Bank Credit also slowed down because banks have to make higher provisions for bad loans. External Factors ● Trade war: According to the RBI, conduit through which trade wars and other sources of global spillovers impacted India during 2018-19 is the intertwining of the finance and confidence channels. ● Devaluation of the yuan : The threat of greater emerging market risk as a result of the yuan devaluation led to increased volatility in Indianbond markets, which triggered further weakness for the rupee. This increased India’s trade deficit and current account deficit. ● Iran Sanctions: It made crude oil imports a bit costlier for India thereby adversely impacting India’s trade deficit. ● Depressed Global Sentiments: With major countries across the world including Germany, U.S, Japan, China etc. showing subdued growth rates, investors have become cautious and reluctant to new investments. Recent Steps Taken By Government to Revive Economy ● Reduction in Corporate Tax Rate - The government has slashed the basic corporate tax rate for companies that do not seek exemptions to 22% from 30% while for new manufacturing companies it has been cut down to 15% from 25%. ● Bank Recapitalisation: Immediate infusion of Rs 70,000 crore into banks to boost their liquidity and lending capacity of banks by Rs 5 lakh crore. Housing finance companies would get up to Rs 30,000 crore with a view to revive the real estate sector. ● Banks Merger: 10 public sector banks to be merged into four. The consolidation of public sector banks will give them scale. This will enhanced their risk appetite. It can hurt however credit growth further as banks will mostly look at consolidation of loan book and containing asset quality rather than scale up lending. ● Stimulus package: The package unveiled reduction of taxes, improvement of liquidity in the banking sector (formal and shadow), increased government spending on auto and infrastructure, and accelerated refunds of goods and services tax (GST). ● FDI policy reforms: Government has allowed 100 percent FDI in coal mining and contract manufacturing, eased sourcing norms for single-brand retailers and approved 26 per cent overseas investment in digital media. ● Budgetary Support: Slew of measures were taken in the budget to boost investment in India including tax cut on electric vehicles, widening scope of voluntary pension scheme and giving push to infrastructure development with an investment of Rs 100 lakh crore over the next five years. ● Insolvency and Bankruptcy Code (Amendment) Act, 2019: The Code provides a time-bound process for resolving insolvency in companies and among individuals. Insolvency is a situation where individuals or companies are unable to repay their outstanding debt. 5 ● SEBI FDI Relaxation Rules: Sebi has come out with rules for merger of foreign portfolio investment (FPI) and non-resident Indian and overseas citizens of India. This will bring a single regime for foreign investors. This will also regulate NRI and person of Indian origin fund inflows. ● Other Major Steps: To bolster consumption, banks have decided to cut interest rates, a move that would lead to lower EMIs for home, auto and other loans. Plan to encourage scrapping of old vehicles and removal of ban on government departments in buying new petrol and diesel vehicles. In a bid to give fillip to job-creating Micro, Small and Medium Enterprises (MSME), pending GST refunds would be done within 30 days. ● Violation of Corporate Social Responsibility (CSR) obligations would not be treated as a criminal offence and only as a civil liability. ● Setting up of an entity for credit enhancement for infrastructure and housing projects, a task force to finalize the pipeline of infrastructure projects and simplification of Know Your Client (KYC) procedure to improve market access for foreign investors. ● Income tax notices and orders would be issued through a centralized system to curb harassment. Economic Revival Package The Union Government announced several measures through an economic revival package stimulating economic growth and markets. Keynesian economic theory says the government should increase demand to boost growth. The theory supports expansionary fiscal policy. Its main tools are government spending on infrastructure, unemployment benefits, and education. Features of Indian Government’s ‘Economic Revival Package’: a. Super-rich tax on foreign and domestic equity investors ● Government, reviving its fiscal policy, has removed surcharges on capital gains tax for transfer of equity shares. ● It also provisioned for the creation of a credit default swap market which will deepen the bond market. ● Easing tax liabilities and addressing the ongoing concerns of tax harassment by tax officials, the Government has also eliminated debenture redemption reserve requirements. ● The domestic investors are also relaxed with the withdrawal of surcharges. ● It will help in bringing offshore rupee market to domestic market. b. Exemption of startups from ‘angel tax’ ● In a major relief to entrepreneurs and start-ups, the Government has withdrawn the ‘angel tax’ for start-ups and their investors. ● Through the move, the Government has supported entrepreneurs and innovations, allowing them for a tax-free startup capital. c. Addressing distress in the auto sector ● The Government cancelled its decision for raising the one time registration fee on vehicles until June 2020. ● The Government also allowed the BS-IV vehicles, which are bought before April 2020, to remain operational for their full period of registration.