Credit rating agency CRISIL has lowered gross domestic product (GDP) growth forecast for India by 20 basis points to 6.9 per cent for this fiscal, citing weak monsoon and slowing global growth. Sluggish GDP data for the first quarter was also taken into account for lowering India's growth estimates.
The development came days after the International Monetary Fund (IMF) cut India's growth by 30 basis points for the calendar years 2019 and 2020 to 7 per cent and 7.2 per cent, respectively, due to weaker-than expected outlook for domestic demand.
The global analytical firm, in its latest report on the outlook for India in the financial year 2019 titled 'Uphill trek', said that the slowdown would be pronounced in the first half, while the second half is expected to find support from expected monetary easing, consumption, and statistical low-base effect.
The report said that agricultural terms of trade are also expected to improve with a pick-up in food inflation, adding that farmers would benefit from income transfer of Rs 6,000 per year announced by the Centre, and farm loan waivers in a few states.
"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," said Ashu Suyash, Managing Director and CEO, CRISIL Ltd.
The report noted that India's GDP had grown at an impressive 8.2 per cent in fiscal 2017, the fastest in a decade. However, it was derailed by disruptions stemming from policy initiatives and reforms, and rising global uncertainty including from trade disputes.
"On the corporate side, revenue growth is set to grow at a slower 8 per cent, reversing the trend of double-digit growth in the past two fiscals," the CRISIL report said.
"Sales volume in the automobiles sector will be impacted by a trifecta - of spurt in costs due to changes in regulation, tightening liquidity, and moderating income growth. Somber farm incomes will also weigh on rural-led segments such as FMCG," said Prasad Koparkar, Senior Director, CRISIL Research.
The report said that most consumption segments will pull India Inc's revenue growth to single digits, adding that weak prices of commodities such as steel would exacerbate the pain.
CRISIL expects banking sector non-performing assets (NPAs) are expected to decline to 8 per cent by this fiscal end from the peak of 11.5 per cent in fiscal-end 2018, due to lower accretion and increased recoveries. Growth for NBFCs, particularly in the retail segment, is expected to pick up gradually.
Dharmakirti Joshi, Chief Economist, CRISIL, said, "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."
Edited by Chitranjan Kumar
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