Ratings agency Crisil has cut its forecast for GDP growth in 2019-20 to 6.9% from its earlier forecast of 7.1%, citing weak monsoon, slow global growth and poor high-frequency data for the first quarter of the financial year.
“Crisil has sliced its estimate of India’s gross domestic product (GDP) growth by 20 basis points to 6.9% for this fiscal, following a triangulation of downside risks: weak monsoon, slowing global growth, and sluggish high-frequency data for the first quarter,” the agency said in a report.
It added that the slowdown would be more pronounced in the April-June period while the second half of the year would be bolstered by the expected monetary easing, consumption, and a statistical low-base effect.
“Given the crosswinds, the sops announced so far might not be enough to pitchfork growth in this fiscal to, or above, the past 14-year average of 7% per annum,” Ashu Suyash, Managing Director & CEO of Crisil said. “Policy action looks more attuned to consumption than investment demand, which means consumption will be the first to ascend as the tide turns.”
Crisil also expects corporate sector growth to slow to 8% in 2019-20, lower than the double-digit growth trend of the last two financial years.
“Most consumption segments will pull India Inc.’s revenue growth to single digits,” the report said. “And weak prices of commodities such as steel would exacerbate the pain.”
“Sales volume in the automobiles sector will be impacted by a trifecta — of a spurt in costs due to changes in regulation, tightening liquidity and moderating income growth,” Prasad Koparkar, senior director at Crisil Research said. “Sombre farm incomes will also weigh on rural-led segments such as FMCG.”
The report said that banking sectorNPAs are expected to come down to about 8% by the end of financial year 2019-20, based on lower additional NPAs and increased recoveries. Credit growth is expected to recover to 14%, the highest in five years.
“The crucial question is whether a trough is in sight,” Dharmakirti Joshi, chief economist at Crisil said. “Given the fiscal constraints, public spending is unlikely to have the heft to pull growth above 7%. And some of the recent, and much-needed, reforms would pay off only over the medium term. There would, therefore, be some near-term onus on monetary policy to stimulate. But how effective that can be is the big question” he said.