SBI Confirms Economic Slowdown, Drops India's GDP Growth Forecast To 5% For FY20

State Bank of India has predicted India’s Gross Domestic Product (GDP) growth for FY20 come down to 5% from an earlier 6.1%. This may lead to a record low of 4.2 per cent in the second quarter amid low automobile sales, flattening of core sector growth and declining investment in construction and infrastructure.

To propel economic growth, it said, the Reserve Bank of India (RBI) may go for “larger rate cuts” in December monetary policy review.

“Based on our composite leading indicator suggests GDP growth to slow down further from 5 per cent in Q1 of FY20 to 4.2 per cent on account of low automobile sales, deceleration in air traffic movements, flattening of core sector growth and declining investment in construction and infrastructure,” the SBI report said.

State Bank of India together with other global agencies, the Asian Development Bank, World Bank, Organisation for Economic Co-operation and Development, RBI and the International Monetary Fund, anticipates India’s FY20 growth rates.

“Our 33 high frequency leading indicators reveal an acceleration rate which was 65% in Q1 FY19, declined sharply to 27% in Q2 FY20. Besides that, Skymet also reported that the country as a whole received 110% of the long period average (LPA) of 89 cm of rainfall during the four-month-long southwest monsoon period, making it to the above-normal category,” SBI said.

“While 40 to 50% soybean has been hit in Madhya Pradesh, which is the biggest producer of the oilseed, 30 to 40% of the groundnut and up to 30% of cotton crops have been affected in Gujarat,” the report added.

“As these states are major agrarian states, so this could have a negative impact on agricultural growth. Considering all these domestic parameters along with the global downturn, we now foresee a GDP growth at 5 per cent in the current fiscal,” the report said.

The report comes amid the dip in industrial production by 4.3 per cent in September, recording the worst performance in seven years due to output decline in manufacturing, mining and electricity sectors, as per Central Statistics Office (CSO) data.

To combat the growth slowdown, the report suggested that “it is imperative that India adheres to no negative policy surprises” in sectors like telecom, power and NBFCs.

“We expect the growth rate to pick up pace in FY21 to 6.2%. We also expect revisions to the GDP data as in the past, but that is likely in February 2020 as is the custom. In FY17, Q1 GDP figure was revised upwards from 7.1% in every revision and finally settled at 9.2%”, the bank said.

Also Read: Industrial Production Contracts 4.3% In Sept, Steepest Fall In 8 Years