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India Ratings cuts FY20 GDP forecast to 6.7% from earlier estimate of 7.3%

It said the rising global trade tension will also have an adverse impact on exports

Press Trust of India  |  Mumbai 

8% annual growth needed for GDP to touch $5 trn by FY25: Economic Survey

and Research has revised downward the country's gross domestic product (GDP) growth to 6.7 per cent from an earlier estimate of 7.3 per cent for the current fiscal due to weak consumption demand, monsoon and slowdown in manufacturing growth.

The downward revision of growth by the domestic rating agency comes days after Moody's Investors Service had cut the GDP growth forecast for 2019 calendar year to 6.2 per cent from the previous estimation of 6.8 per cent.

"We have revised the country's FY20 gross domestic product (GDP) growth downwards to 6.7 per cent (six-year low) from our earlier forecast of 7.3 per cent," India Rating and Research said in a report

It expects FY20 to be the third consecutive year of subdued growth pushed by a slowdown in consumption demand, delayed and uneven progress of the monsoon so far, a decline in manufacturing growth and inability of Insolvency and Bankruptcy Code to resolve cases in a time-bound manner.

It said the rising global trade tension will also have an adverse impact on exports.

Even on a quarterly basis, Q1 FY20 is expected to be the fifth consecutive quarter of declining GDP growth at 5.7 per cent, the report said.

The rating agency expects GDP growth to recover to 7.4 per cent in the second half of FY20, mainly on account of the base effect.

It said the recent measures announced by the government to boost the economy are likely to support growth only in the medium term.

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

Even investment, particularly private corporate investment has remained sluggish over the past few years.

Given the stress in the real estate sector and manufacturing sector capacity utilisation hovering in 70-76 per cent range since FY14, the revival of private investment demand will be a long drawn process, it said.

Food and crude oil prices, key drivers of inflation in the country, is currently benign and likely to remain so during the remainder FY20.

The agency expects inflation based on the wholesale price index and consumer price index to remain moderate at 3.2 per cent and 3.8 per cent, respectively, in FY20.

"This will provide headroom to the Reserve Bank of India (RBI) to continue with its accommodative policy stance, thereby resulting in scope for more rate cuts in the near term," it said.

The report said in view of RBI deciding to transfer Rs 1.76 trillion to the government, achieving FY20 fiscal deficit target of 3.3 per cent will not be difficult.

It expects current account deficit to decline to 1.9 per cent of GDP in FY20 from 2.1 per cent of GDP in FY19, aided by softer crude oil prices, and rupee to average 71.21 against the dollar in the fiscal.

First Published: Wed, August 28 2019. 16:31 IST
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