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  3. Ind-Ra slashes India’s GDP growth forecast to 6.1% for FY20

Ind-Ra slashes India’s GDP growth forecast to 6.1% for FY20

11 Oct 2019 Evaluate

India Ratings and Research (Ind-Ra) has slashed the country’s gross domestic product (GDP) forecast for current fiscal year (FY20) to 6.1% for the second time in two months. Recently, the rating agency had revised its GDP growth estimate to 6.7% in August from of 7.3% in forecasted earlier. The cut in forecast follows the Central Statistical Organisation (CSO) recent estimate of first quarter (April-June) growth at 5%, which came in lower than India Ratings’ estimate of 5.7%.

Rating agency said although India Ratings had cited a slowdown in both urban and rural consumption demand growth as one of the key reasons for the downward revision of GDP in its August 2019 forecast, CSO’s first quarter estimate shows that the slowdown has been much sharper than expectation. It expects the first half GDP growth to be 5.2%, and recover to 6.9% in the second half of the current fiscal, mainly on account of the base effect.

The slowdown in consumption demand is reflected in the Reserve Bank of India’s (RBI) Consumer Confidence Index as well, that declined to 89.4 in September 2019 (95.7 in July 2019). The other key indicators that have worsened lately are aggregate capacity utilisation declining to 73.6% in the first quarter, banking credit to commercial sector turning negative at Rs 1,287 billion in the first half and non-banking credit to commercial sector falling to Rs 2,197 billion in the same half of the current fiscal.

Besides, private consumption fell to 3.1% in the first quarter, from 7.2% in the previous one and 7.3% in the same quarter a year ago. The report highlighted that demand the bigger challenge facing the economy owing to a collapse in consumption demand, while private investment is not forthcoming. The 2019-20 fiscal deficit has been budgeted at 3.3% of the GDP. As per the report, tax revenue in 2019-20 may fall short of the budgeted figure by around Rs 1,500 billion, similar to the tax revenue shortfall observed in the last fiscal. It added that the fiscal deficit could increase to 3.6% of GDP in 2019-20.

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