Ind-Ra revises Indian economic growth forecast to 7.2% from 7.4% for FY19

17 Aug 2018 Evaluate

Citing headwinds emanating from elevated global crude oil prices and the government’s decision to fix the minimum support prices of all kharif crops at 1.5 times the production cost (A2+FL), the India Ratings and Research (Ind-Ra), a subsidiary of Fitch Ratings, in its latest report has revised its Indian economic growth forecast to 7.2% for current fiscal year (FY19) from 7.4% forecasted earlier. It also pointed to other headwinds lurking on the horizon such as the rising trade protectionism, depreciating rupee and, no visible signs of the abatement of the non-performing assets of the banking sector.

The report titled ‘Mid-year FY19 Outlook’ stated that it is taking a tad longer than expected to resolve cases under the Insolvency and Bankruptcy Code. This simply means ‘bringing the stuck capital back into the production process to enhance the productivity of capital’ will be a long drawn-out affair. The report also expects private final consumption expenditure to grow 7.6% in 2018-19 compared to 6.6% in 2017-18. It pointed out that government capex alone will be insufficient to revive the capex cycle, as its share in the total capex of the economy was only 11.1% during 2012-17.

The rating agency observed that the share of private corporations was 40.9%. As private corporations in combination with the household sector command 77.5% of the total investment in the economy, their capex revival is a must for a broad-based recovery in the investment cycle. Noting that India will face continued headwinds on the exports front, it said although it expects the annual value of exports to touch $345 billion in the current fiscal, crossing the peak of $318 billion attained in 2013-14.

On the inflation front, it expects average retail and wholesale inflation in 2018-19 to come in at 4.6% and 4.1%, respectively, as against 4.3% and 3.4% forecasted earlier. It also expects current account deficit (CAD) to widen to $71.1 billion in 2018-19 from $48.7 billion in 2017-18. On rupee, it said that in 2018, rupee has already depreciated 7.7% till July in response to elevated global turbulence, worsening of current account, rising inflation and concerns related to fiscal deficit. Besides, Ind-Ra has maintained a stable outlook on the finances of Indian states for 2018-19 and expects the aggregate fiscal deficit of the states to moderate to 2.8% of GDP.

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