India Ratings Cuts India’s GDP Forecast For FY 20 to 5.6 per cent

India Ratings Cuts India’s GDP Forecast For FY 20 to 5.6 per cent
Aparajita Gupta - 26 November 2019

New Delhi, November 26: India Ratings and Research (Ind-Ra) has revised its GDP growth forecast for FY20 to 5.6 per cent on Tuesday. 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 2QFY20 GDP growth coming in a little higher than 5 per cent is unlikely to hold. The new projection suggests that 2QFY20 GDP growth is likely to be 4.7 per cent. Despite favourable base effect, declining growth momentum suggests that even the 2HFY20 will now be weaker than previously forecasted and is likely to come in at 6.2 per cent,” stated the ratings agency.

It said 5.6 per cent GDP growth will require heavy lifting by the government.

Although government expenditure did not witness much traction in 1QFY20 due to parliamentary elections, it picked up significantly in 2QFY20. Combined capital and consumption expenditure of central and 20 states government in 2QFY20 grew 37.8 per cent (1QFY20: -18.3 per cent, 2QFY19: 11.7 per cent) and 20.1 per cent (1QFY20: 4.1 per cent, 2QFY19: 14.7 per cent) respectively.

Ind-Ra expects it to continue in 2HFY20 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 believes FY20 GDP growth could be even lower than 5.6 per cent.

Private final consumption expenditure (PFCE) growth is now expected to grow 4.9 per cent in FY20 (previous forecast 5.5 per cent), significantly lower from 8.1 per cent in FY19, slowest since FY13 (new series data is available from FY12).

The ratings agency said, ongoing agrarian distress and dismal income growth so far, coupled with subdued income growth expectation in urban areas have weakened the consumption demand considerably. Even the festive demand has failed to revive it and 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 in FY20 (earlier forecast 7 per cent) from 10 per cent in FY19, which will be a five-year low.

Wholesale/retail inflation is likely to remain benign; although some pressure on this front may emerge from the rising inflation on select food items, the agency predicted.

Advertisement*