Source: The Hindu
Manifest pedagogy: RBI and government policy and estimates with respect to growth, inflation and other dynamics such as employment-rural and urban have great significance in terms of policy coordination and implementation. RBI is equally concerned with promotion of economic growth.
In news: RBI has released IOS
Placing it in syllabus: Money and Banking
Static dimensions: About Industrial Outlook Survey (IOS)
- Banking sector stress in india
- Problems of NBFC, falling employment,
- Summary of report
About Industrial Outlook Survey (IOS):
- The Industrial Outlook Survey (IOS) of the manufacturing sector has been conducted by the Reserve Bank of India (RBI) since 1998 on a quarterly basis.
- The survey mainly seeks to capture the qualitative assessment on the business environment for the current quarter and their expectations for the next quarter.
- The manufacturing sector companies with paid-up capital of over Rs 5 million are selected and responses through questionnaires are collected.
- The qualitative responses are based on a set of indicators relating to demand conditions, financial conditions, employment and price situation.
- Aggregation of the responses are mainly done in two ways:
- The Net responses (NR), i.e, the difference between proportions of optimistic (increase) and pessimistic (decrease) responses are calculated. A higher value of NR shows an improved optimism.
- The second measure is a composite index known as the Business Expectations Index (BEI) which is calculated as the weighted NRs of nine business indicators.
Problems of NBFC, banking sector:
- According to the Fitch ratings, the stress on the non-banking sector is to have an impact on banks’ asset quality and may lead to solvency risk.
- Indian banks have thin buffers against systemic NBFC stress and hence are prone to solvency risk.
- Hence a negative outlook on Indian banks, has been maintained due to continued weak performance and COVID 19 pandemic affecting the global economy.
- Non-bank stress coupled with rising macro headwinds pose further challenges for asset quality, particularly at state banks which continue to experience capital constraints, delays in bad-loan recoveries and poor earnings.
- More capital is needed to insulate the banks’ weak balance sheets and to sustain loan growth.
Summary of report:
- According to the latest survey on industrial outlook conducted for January-March, 2020, industries have assessed that they are walking into a highly pessimistic phase in terms of demand and overall financial situation due to COVID 19.
- Demand conditions have deteriorated for the manufacturing sector.
- Fitch Ratings has slashed India’s growth forecast to a 30-year low of 2 percent, from 5.1 percent predicted earlier for the fiscal year ending March 2021.
- The Asian Development Bank (ADB) has projected India’s growth to 4 percent in FY21.
- Most banks are indicating a sharp deterioration in the asset quality scenario which reflects in a worsening economy.
- According to the economists the bad assets in the banking sector could spike significantly on account of the prolonged lockdown which could badly hurt small and medium-sized enterprises (SMEs) and microfinance loans.
- Corporate Non-performing Assets (NPAs) are showing an increasing trend.
- According to the latest RBI Consumer Confidence survey, consumer confidence, as measured by the current situation index (CSI), in early March 2020 remained broadly close to the all-time low.
- Sentiments on the general economic situation, employment scenario and household income has remained pessimistic.
- Apart from the continuing resilience of agriculture and allied activities, most other sectors of the economy are adversely impacted.
- The disruption to the world’s economies caused by the COVID-19 pandemic is expected to wipe out 195 million jobs worldwide in the second quarter of 2020.
- About 400 million people working in the informal economy in India are at risk of falling deeper into poverty.
- Huge losses are expected across different income groups but especially in upper-middle income countries, which far exceeds the effects of the 2008-9 financial crisis.
- Sectors which are at most risk include accommodation and food services, manufacturing, retail, and business and administrative activities.
- The International Labour Organization (ILO) in its latest report has described the coronavirus pandemic as “the worst global crisis since World War II”.
The report has suggested large-scale, integrated policy measures which focus on four pillars:
- supporting enterprises, employment and incomes;
- stimulating the economy and jobs;
- protecting workers in the workplace;
- using social dialogue between government workers and employers to find solutions