India Ratings lowers its FY20 GDP growth forecast to 6.1 pc

India Ratings and Research (Ind-Ra) on Thursday revised its forecast of India's gross domestic product (GDP) growth in current financial year downward to 6.1 per cent following the Central Statistical Organisation (CSO) estimating Q1 growth to be 5 per cent, much lower than Ind-Ra's estimate of 5.7 per cent.

This is Ind-Ra's second downward revision. The agency revised its GDP growth estimate to 6.7 per cent from its earlier forecast of 7.3 per cent as recently as in August.

Although Ind-Ra had cited a slowdown in both urban and rural consumption demand growth as one of the key reasons for the downward revision of the GDP in its August 2019 forecast, the CSO's first-quarter estimate shows that the slowdown has been much sharper than Ind-Ra's expectation.

It crumbled to 3.1 per cent in Q1 FY20 as compared to 7.2 per cent a quarter ago and 7.3 per cent a year ago. The GDP growth in H1 FY20 is likely to be 5.2 per cent. Ind-Ra expects it to recover to 6.9 per cent in H2 FY20, mainly on account of the base effect.

The slowdown in consumption demand is reflected in the Reserve Bank of India's consumer confidence index as well which declined to 89.4 in September 2019 (July 2019: 95.7).

The other key indicators that have worsened lately are aggregate capacity utilisation declining to 73.6 per cent, banking credit to commercial sector turning negative at Rs 1.28 lakh crore and non-banking credit to commercial sector falling to Rs 2.19 lakh crore.