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India Ratings & Research (Ind-Ra) on Wednesday lowered its projections on India’s GDP (Gross Domestic Product) growth rate by 60 basis points.
The agency said the GDP growth rate could slip to 6.7 per cent during the current fiscal year (FY20). This is 60 basis points (100 basis points mean one percentage point) lower than the earlier estimate of 7.3 per cent and 10 basis points lower than 6.8 per cent registered in 2018-19. For the first three months of the current fiscal (first quarter or April-June period), it estimated the growth rate could come down to 5.7 per cent which is 10 basis points less than 5.8 per cent during the fourth quarter of the previous fiscal year. The Government will release the growth numbers for the first quarter on Friday.
The agency expects FY20 to be the third consecutive year of subdued growth. It has listed five key reasons for this — a slowdown in consumption demand, delayed and uneven progress of monsoon so far, decline in manufacturing growth, inability of Insolvency and Bankruptcy Code to resolve cases in a time-bound manner and rising global trade tensions adversely impacting exports.
“Even with a thumping majority, this Government has not been able to generate hope. Once pessimism sets it, consumption pattern gets affected,” Sunil Kumar Sinha, Principal Economist with Ind-Ra, said. The agency did take note of the measures announced by the Finance Minister Nirmala Sitharaman last week but felt “bandage kind of approach will not work.” It, however, felt that these measures could support growth in the medium term and the agency expects GDP growth to recover to 7.4 per cent during the second half (October-March) of the current fiscal.
Lower consumption
Private consumption, which has been the mainstay of aggregate demand, has in fact come under pressure in urban as well as rural areas lately. While the reduced income growth of households has taken the steam out of the urban consumption, drought/near-drought conditions in three of the past five years, coupled with collapse of food prices, has taken a heavy toll on rural consumption, the agency said.
Due to delayed and uneven monsoon, Ind-Ra expects agricultural gross value added (GVA which is the value obtained after deducting taxes and adding subsidies from GDP) to grow at 2.1 per cent in FY20, lower than 2.9 per cent in FY19.
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