Slowdown in consumption: India Ratings cut GDP forecast to 6.7% for current fiscal from earlier estimate of 7.3%

India Ratings on Wednesday lowered the country's growth forecast to six-year low of 6.7 percent for the current fiscal from an earlier estimate of 7.3 percent on account of slowdown in consumption and moderation in industrial growth among other factors

Press Trust of India August 29, 2019 13:08:02 IST
Slowdown in consumption: India Ratings cut GDP forecast to 6.7% for current fiscal from earlier estimate of 7.3%
  • This would be the third consecutive year of subdued growth, India Ratings principal economist Sunil Kumar Sinha said

  • Even on a quarterly basis, he said, April-June is expected to be the fifth consecutive quarter of declining GDP growth at 5.7 percent

  • Citing factors for moderation in growth, he said, it is mainly due to five reasons including a slowdown in consumption demand and manufacturing and delayed, uneven progress of the monsoon so far

New Delhi: India Ratings on Wednesday lowered the country's growth forecast to six-year low of 6.7 percent for the current fiscal from an earlier estimate of 7.3 percent on account of slowdown in consumption and moderation in industrial growth among other factors.

This would be the third consecutive year of subdued growth, India Ratings principal economist Sunil Kumar Sinha said here.

Even on a quarterly basis, he said, April-June is expected to be the fifth consecutive quarter of declining GDP growth at 5.7 percent.

Citing factors for moderation in growth, he said, it is mainly due to five reasons including a slowdown in consumption demand and manufacturing and delayed, uneven progress of the monsoon so far.

Besides, he said the inability of Insolvency and Bankruptcy Code to resolve cases in a time-bound manner, and rising global trade tension adversely impacting exports are pulling down GDP numbers.

Slowdown in consumption India Ratings cut GDP forecast to 67 for current fiscal from earlier estimate of 73

Representational image. Reuters.

At this pace of growth, the target of $5 trillion by 2024-25 seems to be a far cry, he said, adding, there are enough calculation in public domain according to which the country needs to have a nominal GDP growth rate of 12 percent to achieve that.

Given the past record, $5 trillion seems to be a conservative target, he added.

Sinha also said the recent measures to address some of the woes of auto, MSME and financial sectors announced by the government to revive the economy will take time to bear results.

These measures are likely to support growth only in the medium term, but the agency expects GDP growth to recover to 7.4 percent in the second half of the fiscal mainly on account of the base effect.

Private consumption, which has been the mainstay of aggregate demand, has in fact come under pressure in urban as well as rural areas lately, he said.

"While the reduced income growth of households has taken the sting out of the urban consumption, drought/near-drought conditions in three of the past five years coupled with the collapse of food prices has taken a heavy toll on rural consumption," he said.

Even investment, particularly private corporate investment, has remained sluggish over the past few years. However, average investment growth, largely constituting government and corporate sector maintenance capex, at 9.2 percent during 2016-17 to 2018-19 looks healthy vis-à-vis the average investment growth of 3.6 percent during 2013-14 to 2015-16.

"Incremental or greenfield private corporate capex, although, is still missing. Since the major contributors to the economy's investment pie are households (which include unorganised and unregistered enterprises (38.6 percent), and private corporations at 37.9 percent), their spending holds the key for reviving broad-based investment activity in the economy," he said.

Given the stress in the real estate sector and manufacturing sector capacity utilisation hovering in 70-76 percent range since 2013-14, Ind-Ra believes the revival of private investment demand will be a long drawn process, he said.

"Of the other two demand-side growth drivers, government expenditure continues to be steady and is expected to grow at 10.6 percent in FY'20 (FY19: 9.2 percent) while exports are facing headwinds due to rising trade tensions/weakening global GDP growth and are expected to grow at a subdued 7.2 percent in FY'20," he said.

Due to delayed and uneven monsoon, agricultural gross value added (GVA) may grow at 2.1 percent in the current fiscal as compared to 2.9 percent in the last financial year.

On inflation he said, it would be within the comfort zone of the RBI and thus provide headroom to the central bank to continue with its accommodative policy stance, thereby resulting in scope for more rate cuts in the near term (notwithstanding the 110 basis points rate cut so far in 2019).

As a result, the 10-year G-Sec bond yield is expected to trade in the range of 6.1-6.2 percent by March 2020.

In our assessment, he said, tax revenue may fall short by around Rs 1,50,000 crore from the budgeted figure, similar to the tax revenue shortfall observed in the previous fiscal.

However, in view of RBI deciding to transfer Rs 1.76 lakh crore to the government, achieving a fiscal deficit target of 3.3 percent of GDP will not be difficult for the current fiscal.

With regard to forex movement, he said the rupee may average 71.21 against the dollar in the current fiscal.

Updated Date:

Find latest and upcoming tech gadgets online on Tech2 Gadgets. Get technology news, gadgets reviews & ratings. Popular gadgets including laptop, tablet and mobile specifications, features, prices, comparison.

also read

RTI reponse reveals over 18 lakh ration cards applications pending in UP; 56.8% requests rejected
India

RTI reponse reveals over 18 lakh ration cards applications pending in UP; 56.8% requests rejected

The large backlog of pending ration card applications and the return of more than 30 lakh migrant workers to Uttar Pradesh during the COVID-19-induced lockdown is a worrying combination, especially when many have lost their means of livelihood

Parliament Updates: Epidemic Diseases Bill introduced in Rajya Sabha; House adjourned till 9 am tomorrow
Politics

Parliament Updates: Epidemic Diseases Bill introduced in Rajya Sabha; House adjourned till 9 am tomorrow

Parliament Updates: On the first day of the Monsoon Session, the Salaries and Allowances of Ministers (Amendment) Bill and the Indian Medicine Central Council (Amendment) Bill were also introduced in the Upper House.

84% construction workers in Pune, Ulhasnagar not paid in lockdown: Survey shows devastating impact of GDP contraction on migrant labourers
India

84% construction workers in Pune, Ulhasnagar not paid in lockdown: Survey shows devastating impact of GDP contraction on migrant labourers

The construction industry in India is the second largest employer after agriculture and has an industry size of Rs 10.5 trillion. According to the Confederation of Real Estate Developers Association of India, prior to the lockdown, there were 20,000 ongoing construction projects in the country and work was being undertaken in as many as 18,000 sites.