India Ratings and Research (Ind-Ra) has revised India’s gross domestic product (GDP) growth estimate for fiscal 2019-20 to 7.3 per cent from 7.5 per cent earlier. The predicted lower-than-normal monsoon, the continued agrarian distress and the loss of momentum in the industrial output growth are being cited as the key reasons for the downward revision.
The fourth reason is the slow progress on cases referred to the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016, that has led to the resolution of the non-performing assets of the banking sector becoming a long-drawn-out process, according to a press release from the rating firm.
Inability to bring the stuck capital back into the production process will have implications for investment recovery, believes Ind-Ra.
Investment expenditure growth, as measured by gross fixed capital formation (GFCF), has, therefore, been downwardly revised to 9.2 per cent for 2019-20 (it was 10.0 per cent for the previous fiscal) from the earlier forecast of 10.3 per cent.
Although the average 9.5 per cent investment growth during FY17-FY19 is quite healthy compared with the average 3.6 per cent GFCF growth over FY14-FY16, the current investment recovery is heavily dependent on government capital expenditure (capex) spending as incremental private corporate capex is yet to revive.
However, consumption demand, as measured by private final consumption expenditure, is likely to grow 8.1 per cent in FY20 (FY19: 8.3 per cent), supported by moderate inflation and favourable demographics.
In view of the ongoing agrarian distress, consumption demand is likely to be more pronounced in urban areas.
Trade frictions arising due to US actions and counter-actions by affected countries and a likely slowdown in the global GDP growth will keep the external environment challenging in 2019, Ind-Ra estimates.
The share of exports (goods and services) in India’s GDP increased to 25.4 per cent in 2013-14 from 12.8 per cent in 2000-01 but declined thereafter to 19.7 per cent in 2018-19. Considering the export growth is likely to stay in the low double-digit range, Ind-Ra expects the share of exports in India’s GDP to rise to 20.7 per cent in 2019-20.