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

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. [caption id=“attachment_4285749” align=“alignleft” width=“380”] Representational image. Reuters.[/caption] 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.