| Direction: Read the following passage divided into five paragraphs carefully and answer the questions that follow: |
| Paragraph 1: The slowing of GDP growth to below 6 per cent has created consternation and concern in many quarters. Unsurprisingly, in this age of instant gratification, some have immediately called for a fiscal stimulus to re-store growth. To assess the efficacy of any intervention, however, it's crucial to first correctly diagnose the problem. Wrong medicine can often be worse than the underlying ailment. |
| Paragraph 2: Let's first stipulate some facts. Growth has now been slowing for five quarters. The slowdown has been accentuated in 2017, but in the face of two large shocks — demonetisation and GST — should this really be a surprise? Instead, the real puzzle is despite this slowdown, manufacturing imports have accelerated sharply in recent months, thereby widening the current account deficit (CAD). Even as growth has slowed from 6.1 per cent to 5.7 percent, the CAD has quadrupled from 0.6 per cent to 2.4 per cent of GDP. Seventy per cent of this is on account of increased manufacturing imports. If domestic demand is slowing, why are imports accelerating? Something doesn't add up. We, therefore, need to answer three questions. Why has growth slowed since 2016? Why are imports accelerating despite weaker growth in recent quarters? And, what then, is the optimal policy response? Paragraph 3: So what's behind the slowdown? GDP growth was running at 7.3 per cent in 2014-15. Then oil prices collapsed and provided India with a large positive terms-of-trade shock. We estimated this would boost growth by about 100-150 bps. Unsurprisingly, growth accelerated to 8 per cent in 2015-16 despite a drought. The key, however — and as we pointed out at the time — is the growth impact from oil would be transitory, and disappear once oil prices stabilised. The slowdown from March 2016 was therefore an inevitable consequence of the oil windfall rolling off. |
| Paragraph 4: Further, the economy was embarking on de-leveraging with policymakers correctly doubling down on impaired asset recognition and resolution. De- leveraging inevitably impinges on growth, but is a necessary pre requisite to future investment. De-leveraging and the dissipation of the oil windfall, therefore, inevitably combined 10 slow growth from 9.1 per cent in March 2016 to 7.5 per cent in September 2016 — the levels that existed before oil collapsed. |
| Paragraph 5: Over the last three quarters, however, growth has slowed another 200 bps to 5.7 per cent, against the backdrop of demonetisation and GST. Some of this is transitory related to GST-destocking and most expect growth to recover to above 6 per cent later this year. But something bigger is also at play. Consumption has recovered to the same growth rate as before demonetisation, even as softer private consumption has been offset by stronger public consumption. Investment continues its inexorable slowing, but only accounts for a third of the recent slowdown, and exports are stronger in 2017, as global growth has accelerated. So what's accentuated the slowdown in the last three quarters? |
| (I) At present people believe in the policy of wait and watch rather than doing something in haste and satisfying themselves. |
| (II) These days people want to accomplish everything without much delay. |
| (III) These days everybody is in a hurry to reach his goal well before the fixed time. |
A) Only (I)
B) Both (II) and (III)
C) None of (I), (II) and (III)
D) Only (II)
E) Only (I) and (III)
Correct Answer: A
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