Ind-Ra lowers India’s GDP growth forecast in 2019-20 to 6.1% from 6.7% in August 2019

India Ratings and Research (Ind-Ra), a part of Fitch group has lowered India’s gross domestic product (GDP) forecast for financial year (FY) 2019-20 to 6.1%. This was second downgrade in the last two months. Earlier in August 2019, Ind-Ra had revised GDP growth estimate to 6.7% from its earlier forecast of 7.3%. It has cited slowdown in both rural and urban consumption demand growth as one of the key reasons for the downward revision of GDP in its August 2019 forecast.

Ind-Ra Projections

Growth Forecast: GDP growth in the first half of FY 2019-20 to be 5.2% and forecasts it to recover to 6.9% in 2HFY20, mainly on account of the base effect.

Government Measures: The recent measures announced by government to arrest economic slowdown are likely to support growth only in medium-to-long term. Most of the measures announced by government are essentially supply-side response to revive growth.

Bigger challenges faced by economy: It is from demand side as consumption demand has collapsed and private corporate investment is not forthcoming.

Way Forward: There is need is to take measures that will enhance disposable income and put additional money in the hands of rural and urban households. Government-initiated spend on rural infrastructure activities will help to generate large-scale employment that could add/stimulate consumption demand.

Key drivers of inflation in India: They are food and crude oil prices and they stand favourable/benign currently. They are likely to remain the same during the remainder of the financial year.

Fiscal deficit: It has been budgeted at 3.3% of GDP. It could increase to 3.6% of GDP in FY20. Additionally, current account deficit is expected to decline to 1.8% of GDP in FY20 from 2.1% of GDP in FY19, aided by softer crude oil prices. In terms of the domestic currency, Indian rupee will average 70.86 against the dollar in FY20.

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