S&P Global Ratings in its quarterly report on the Asia-Pacific region has slashed India’s Gross Domestic Product (GDP) growth projection to 6.3% for the current financial year (FY20) from 7.1% forecasted earlier, amid decline in private consumption. Though, it expects the Indian economy to recover in FY21 to 7%. It said ‘India's slump is deeper and more broad-based than we expected. In the March-June quarter, the economy expanded by just 5%, well below potential, which we estimate to be north of 7%. Most alarming has been the precipitous decline in private consumption growth that had been the engine of the economy in recent years - down to about 3% in the March-June quarter.’
On the government’s effort to stimulate the economy through substantial reductions in corporate taxes, S&P said it will cost the exchequer 0.7% of GDP, though the net impulse will be smaller, with the government eliminating some exemptions. The report said short-term effect on the economy would be limited until businesses felt more confident about the outlook for demand. It added that other fiscal support is more targeted and may lift demand in some segments of the economy- e.g., income transfers to farmers.
On the Reserve Bank of India's monetary policy, S&P said ‘we expect further cuts if external conditions (US rates and oil prices) provide space. Transmission will be imperfect, however, due to long-standing balance sheet constraints among public banks and stress among non-bank lenders. The negative surprises of recent quarters will continue to weigh on private domestic demand. So while some recovery is likely, growth may remain below potential for some time.’
