Economy

India Ratings and Research agency lowers growth projection to 5.6%

Bleak outlook: The ongoing agrarian distress and other factors have weakened consumption demand considerably.

Bleak outlook: The ongoing agrarian distress and other factors have weakened consumption demand considerably.  

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Revises Q2 rate down to 4.7%, consumption expenditure growth to slow.

India Ratings and Research (Ind-Ra) has revised downwards its growth projection for the second quarter of the current financial year to 4.7% and the full-year growth estimate to 5.6%, it announced 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%,” Ind-Ra said in a report.

“This revision became inevitable as the high-frequency data now suggests that the agency’s estimate of second quarter FY20 GDP growth coming in a little higher than 5% is unlikely to hold.

“The new projection suggests that second quarter FY20 GDP growth is likely to be 4.7%,” the report added.

“Despite favourable base effect, declining growth momentum suggests that even the second half FY20 will now be weaker than previously forecast and is likely to come in at 6.2%,” Ind-Ra said in the report.

The 5.6% GDP growth rate for the full year will require the government to shoulder a large part of the investment burden, Ind-Ra said, adding that keeping to the fiscal deficit target for the year could result in an even lower growth rate.

“If the Central government adheres to the budgeted fiscal deficit of 3.3% of GDP by cutting/rolling over expenditure, then Ind-Ra believes FY20 GDP growth could be even lower than 5.6%,” it said.

The ratings agency said that private final consumption expenditure (PFCE) growth is now expected to grow 4.9% in FY20, as against the previous forecast of 5.5%, which is significantly lower than the 8.1% in FY19, and the slowest since at least FY13.

“Ongoing agrarian distress and dismal income growth so far, coupled with subdued income growth expectation in urban areas have weakened the consumption demand considerably,” it said.

“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.”

Investment expenditure growth, as measured by gross fixed capital formation (GFCF), is also expected to moderate to 6% in FY20 from the earlier forecast of 7%. It was 10% in the previous year.

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Printable version | Dec 6, 2019 12:38:15 AM | https://www.thehindu.com/business/Economy/ind-ra-lowers-fy20-growth-to-56/article30090030.ece

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