Ind-Ra lowers growth forecast for the current fiscal to 7.3%

India Ratings & Research has lowered the country’s growth forecast for the current fiscal to 7.3 per cent, from the earlier projection of 7.5 per cent.

The agency has listed three key reasons for lowering its projection. First is the prediction of lower-than-normal monsoon for 2019 and the continued agrarian distress. Secondly, the loss of momentum in the industrial output growth, especially manufacturing and electricity, is likely to hurt growth. And, third, the slow progress in cases referred to the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016, for resolution of the non-performing assets of the banking sector becoming a long-drawn-out process.

According to the agency, the inability to bring the stuck capital back into the production process will have implications on investment recovery. Investment expenditure growth, as measured by gross fixed capital formation (GFCF), has, therefore, been revised downwards to 9.2 per cent for the current fiscal, from the earlier forecast of 10.3 per cent. Although the average 9.5 per cent investment growth during FY17-FY19 is quite healthy compared with the average 3.6 per cent GFCF growth over FY14-FY16, the current investment recovery is heavily dependent on government capex spending as incremental private corporate capex is yet to revive.

However, consumption demand, as measured by private final consumption expenditure, is likely to grow 8.1 per cent in FY20, supported by moderate inflation and favourable demographics. In view of the ongoing agrarian distress, consumption demand is likely to be more pronounced in urban areas. However, schemes based on the concept of universal basic income may provide a fillip to rural consumption in the second half of the fiscal. Also, one-time support to consumption demand may come from election-related expenditure.

Unlike the export-led growth of China, India’s growth has primarily been driven by domestic demand. Yet, exports have played an important role in accelerating India’s GDP growth over the past one-and-half decades. Trade frictions arising due to US actions/counteractions by affected countries and a likely slowdown in the global GDP growth will keep the external environment challenging in 2019.

Considering the export growth is likely to stay in the low double-digit range, Ind-Ra expects the share of exports in India’s GDP to rise to 20.7 per cent in FY20.

Given the Indian Meteorological Department expects the monsoon to be near normal and private weather forecaster Skymet Weather Services Pvt Ltd expects the monsoon to be below normal in 2019, the agency estimates agricultural gross value added growth at 2.5 per cent (against the earlier forecast 3 per cent) for the current fiscal compared with the 2.7 per cent recorded in the last fiscal. The key support to the gross value added growth is likely to come from services (8.3 per cent), followed by industry (7 per cent), it said.