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Ind-Ra slashes FY20 GDP growth forecast to 5.6 pc

Ind-Ra slashes FY20 GDP growth forecast to 5.6 pc
Mumbai, Nov 26 (Agencies) | Publish Date: 11/26/2019 12:31:45 PM IST

India Ratings and Research (Ind-Ra) on Tuesday revised its GDP growth forecast for the current financial year (FY20) to 5.6 per cent.

This is the fourth revision and has come in after the agency had revised its FY20 GDP growth forecast only a month ago to 6.1 per cent.

“This revision became inevitable as the high-frequency data now suggests that the agency’s estimate of Q2 FY20 GDP growth coming in a little higher than 5 per cent is unlikely to hold,” said Ind-Ra in a statement.

“The new projection suggests that Q2 FY20 GDP growth is likely to be 4.7 per cent. Despite favourable base effect, declining growth momentum suggests that even the H2 FY20 will now be weaker than previously forecasted and is likely to come in at 6.2 per cent.”

Furthermore, the 5.6 per cent GDP growth will require heavy lifting by the government. Although government expenditure did not witness much traction in Q1 FY20 due to parliamentary elections, it picked up significantly in Q2 FY20.

Combined capital and consumption expenditure of central and 20 states government in Q2 FY20 grew 37.8 per cent and 20.1 per cent respectively. Ind-Ra expects it to continue in H2 FY20, leading to central government’s fiscal deficit coming in at 3.6 per cent of GDP.

If the central government adheres to the budgeted fiscal deficit of 3.3 per cent of GDP by cutting or rolling over expenditure, then Ind-Ra said FY20 GDP growth could be even lower than 5.6 per cent.

Private final consumption expenditure growth is now expected to grow 4.9 per cent in FY20 against the previous forecast of 5.5 per cent, significantly lower from 8.1 per cent in FY19 and the slowest since FY13.

“The ongoing agrarian distress and dismal income growth so far coupled with subdued income growth expectation in urban areas have weakened the consumption demand considerably,” said Ind-Ra.

Even the festive demand has failed to revive it. This is reflected in the current data of non-food credit, auto sales and select fast-moving consumer goods.

Even investment expenditure growth as measured by gross fixed capital formation is expected to moderate to 6 per cent against the earlier forecast of 7 per cent from 10 per cent in FY19 which will be a five-year low.

Ind-Ra said it expects current account deficit to decline to 1.8 per cent of GDP in FY20 aided by the softer crude oil prices and lower capital goods import with Indian rupee to average 71.06 against the US dollar in FY20.

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