Ratings agency Crisil on Thursday slashed its estimate of India’s gross domestic product (GDP) growth by 20 basis points (bps) to 6.9 per cent for the fiscal 2019-20, in the wake of a host of downside risks including weak monsoon, slowing global growth and sluggish high-frequency data for the first quarter.
The slowdown would be pronounced in the first half, while the second half should find support from expected monetary easing, consumption, and statistical low-base effect, Crisil said at the releaseof its report on India’s FY20 outlook titled ‘Uphill Trek’.
“Agricultural terms of trade are also expected to improve with a pick-up in food inflation. In addition, farmers would benefit from income transfer of Rs 6,000 per year announced by the Centre, and farm loan waivers in a few states,” it said.
Ashu Suyash, managing director and CEO, Crisil, said, “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 cent per annum. Policy action looks more attuned to consumption than investment demand, which means consumption will be the first to ascend as the tide turns.”
“The crucial question, therefore, is whether a trough is in sight. Given the fiscal constraints, public spending is unlikely to have the heft to pull growth above 7 per cent. 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,” said Dharmakirti Joshi, chief economist, Crisil.
India’s GDP had grown at an impressive 8.2 per cent in fiscal 2017, the fastest in a decade.
This was followed by disruptions stemming from policy initiatives and reforms, and rising global uncertainty including from trade disputes – which together triggered a cyclical downturn.
Then, the non-bank (including housing finance companies) crisis, which began late last fiscal, and stress that ensued, slowed disbursals and further impacted household demand, which had already moderated amid lower incomes, weak sentiment and rising costs (fuel prices and insurance for automobiles), Crisil said.
With access to funding becoming a challenge and non-banking financial institution caught up in managing liquidity, their growth halved to a multi-year low in the second-half of last fiscal, and remains impacted.