‘Indian economy expected to grow at 7.5% in 2019-20’https://indianexpress.com/article/business/indian-economy-gdp-expected-grow-2019-20-5543858/

‘Indian economy expected to grow at 7.5% in 2019-20’

Slippage on the fiscal front is imminent, with fiscal deficit rising to 3.5 per cent of GDP in 2018-19 instead of budgeted 3.3 per cent, Ind-Ra said.

According to the advance estimates of Gross Domestic Product released by the Central Statistics Office (CSO), the economy is estimated to grow at 7.2 per cent in the current financial year, up from 6.7 per cent in the previous year.

Indian economy is expected to grow a tad higher at 7.5 per cent in 2019-20 on account of steady improvement in major sectors, as government and private consumption remains robust and investment is steadily picking up, India Ratings and Research (Ind-Ra) said in a report Thursday.

According to the advance estimates of Gross Domestic Product released by the Central Statistics Office (CSO), the economy is estimated to grow at 7.2 per cent in the current financial year, up from 6.7 per cent in the previous year.

It said that slippage on the fiscal front is imminent, with fiscal deficit rising to 3.5 per cent of GDP in 2018-19 instead of budgeted 3.3 per cent. Also, there is a likelihood of a fiscal package for distressed farmers in the 2019-20 budget. In case the government decides to pay Rs 10,000/acre/year to small and marginal farmers, this will push fiscal deficit of the central government by 72 basis points in 2019-20, it said.

After demonetisation and implementation of Goods and Services Tax (GST), the agency had expected 2018-19 to be a year of quick recovery and, indeed, the recovery has been sharp with GDP growth coming in at 7.2 per cent.

“GDP growth would have been even better but for the global headwinds caused by an abrupt rise in crude oil prices, strengthening of US dollar and hiccups faced on the domestic front due to frequent revisions in GST rates, continued agrarian distress, slow progress on Insolvency and Bankruptcy Code cases, and liquidity crunch faced by non-banking finance companies post IL&FS saga,” the agency said in its report.

Over the past few years, private final consumption expenditure and government final consumption expenditure have been the primary growth drivers of Indian economic growth. Ind-Ra said it believes that investments are slowly but steadily gaining traction, with gross fixed capital formation growing 12.2 per cent in the current fiscal and projected to clock 10.3 per cent in the next year. “This is certainly a comforting development, but the flip side of this development is that it is primarily driven by the government capital expenditure or capex, as incremental private corporate capex has yet to revive,” it said.

Due to the slowdown in private corporate and household capex, GDP growth has failed to accelerate and sustain itself close to or in excess of 8 per cent, it said. “Like FY19, the agency expects all major sectors namely agriculture, industry and services to contribute to gross value added (GVA) growth in FY20 from the supply side. However, key support to the GVA growth is expected to come from services, followed by industry and they are expected to grow at 8.3 per cent and 7.4 per cent, respectively, in FY20. Under normal monsoons, agricultural GVA is expected to grow at 3.0 per cent. All this would translate into overall GVA growth of 7.3 per cent in FY20 compared to 7.0 per cent in FY19,” it said.

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While inflation is expected to remain benign, the agency expects the Reserve Bank of India to cut rates only in the next fiscal year. The RBI may change its policy stance from calibrated tightening to neutral in the forthcoming February 2019 monetary review.