India's Growth Forecast Downgraded To 5.6% From 6.1% For Current Financial Year By Fitch Ratings

27 Nov 2019 10:17 AM GMT
Indias Growth Forecast Downgraded To 5.6% From 6.1% For Current Financial Year By Fitch Ratings
Image Credit: India TV, Sagaranjos

The growth forecast for India in the 2019-20 financial year has been revised to 5.6 per cent by India Ratings and Research, the Indian subsidiary of Fitch Group. This forecast comes after the agency had revised the country’s 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 second-quarter GDP growth coming in a little higher than 5 per cent is unlikely to hold,” it added.

“The new projection suggests that second-quarter GDP growth in 2019-’20 financial year is likely to be 4.7 per cent. Despite the favourable base effect, declining growth momentum suggests that even the second half of the financial year will now be weaker than previously forecasted and is likely to come in at 6.2 per cent,” the agency said.

“Although government expenditure did not witness much traction in the first quarter of the current financial year due to parliamentary elections, it picked up significantly in the next one,” the agency added.

The company said that the wholesale inflation was likely to “remain benign” even though “some pressure on this front may emerge from the rising inflation on select food items”.

In October, retail inflation increased to 4.62 per cent, breaching the Reserve Bank of India’s target of 4 per cent for the first time since July 2018. The Consumer Food Price Index of inflation stood at 7.89 per cent as compared to 5.11 per cent the previous month.

“Ind-Ra expects inflation based on the Wholesale Price Index and Consumer Price Index to come in at 1.5 per cent and 3.9 per cent, respectively, in FY20 (FY19: 4.3 per cent and 3.4 per cent),” said the company. “Despite rising inflation in select food items, relatively weak demand conditions have kept the pricing power of the manufacturing sector under check.”

The company said it expects current account deficit to fall to 1.8 per cent of GDP in the financial year, along with softer crude oil prices and lower capital goods import, and the Indian currency becoming weaker to stand at ₹71.06 against the US dollar.

The Indian economy grew just five per cent in the April-June 2019 quarter, the slowest in six years.

Industrial output in September fell 4.3 per cent when compared to the same month last year. In May, the government had released a report by the National Sample Survey Organisation that showed that India’s unemployment rate rose to a 45-year high of 6.1 per cent in 2017-’18. Another survey showed that the monthly per capita consumption expenditure had fallen sharply for the first time in 2017-18 since the 1970s.

“Ongoing agrarian distress and dismal income growth so far, coupled with subdued income growth expectation in urban areas have weakened the consumption demand considerably,” the company noted. It said the festive season had failed to revive demand. “This is reflected in the current data of non-food credit, auto sales and select fast-moving consumer goods,” the agency said.

In an attempt to combat an economic slowdown, the Modi Government announced a cut in the corporate tax rate to 22 per cent from 30 per cent. It also lowered the tax rate for new manufacturing companies to 15 per cent to get foreign direct investments. Other initiatives include bank recapitalisation, the mergers of 10 public sector banks into four, support for the auto sector, plans for infrastructure spending, as well as tax benefits for startups.

Also Read: SBI Confirms Economic Slowdown, Drops India’s GDP Growth Forecast To 5% For FY20

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