Business Today – August 25, 2019

THE BUZZ

Economy

PUT OWN HOUSE

IN ORDER

RBI Governor Shak-

tikanta Das recently

came down heavily on

advanced economies for

unilateral policies and the

risk it poses for the world.

Das advised emerging

market economies to fol-

low policies that promote

macroeconomic and

financial stability, while

focusing on growth.

His words, however,

do not reflect ground

reality. Are we doing

enough for macroeco-

nomic stability? The

credibility of India’s GDP

numbers is frequently

challenged for ‘overesti-

mation’ by economists.

There are reports of the

CAG putting India’s fiscal

deficit at 6.1 per cent of

GDP as against 3.4 per

cent, in 2018/19. This

includes off-balance

sheet borrowings that the

government is encourag-

ing PSUs to do in order to

meet capital expenditure

needs. The higher fiscal

deficit would create infla-

tionary pressure. Also, a

distorted macro picture

influences policy in the

wrong direction. The RBI

is already, for example, on

a rate cutting spree, citing

low inflation and lower

fiscal deficit. Similarly,

the government’s plan

to raise part of govern-

ment borrowing abroad

to bridge the fiscal deficit

comes with huge risk.

Former RBI Governor

Raghuram Rajan demol-

ished the ‘low rates or low

cost’ theory for sovereign

bonds saying that a

higher payout at the time

of maturity because of

currency

depreciation would

balance the overall cost.

The recent Budget

decision on super tax has

already led to an outflow

of dollars by foreign

investors. This could lead

to lower forex reserves

and put the rupee on a

downhill journey. India

needs to focus more on

attracting capital flows,

especially FDI, where

there are challenges.

It’s time to put our own

house in order.

-Anand Adhikari

LOSING

MOMENTUM

HIGH FREQUENCY

PMI data suggests that

manufacturing is expand-

ing but at a slower pace.

The recent economic

survey, too, hinted at

subdued demand in tex-

tiles, iron and steel and

auto sectors. The June

quarter results mirror the

same story. A total of 109

manufacturing compa-

nies have reported a 21

per cent drop in profit in

Q1FY20 on mere 7 per

cent rise in sales. Labour-

intensive textile and

discretionary sector auto

have been worst hit with

sales dropping 16 per

cent and 7 per cent, re-

spectively. A 27 per cent

drop in Maruti Suzuki’s

profit for the quarter or

flat profit growth by Bajaj

Auto speaks volumes

about the slowdown. A

total of 23 chemical firms

have reported a mere 5

per cent rise in sales but

flat profit. With election-

induced slowdown taper-

ing off, experts expect

order inflows to improve

in the second half of

FY20. Execution in terms

of revenue visibility and

how the companies lever-

age their working capital

needs hold key. All eyes

are on rate transmission.-

Aprajita Sharma

MANUFACTURING

`2.

TRILLION

India's 2018 GDP.

India now stands

7th in world GDP

rankings, from

5th in 2017

10 IBUSINESS TODAYIAugust 25I 2019