India Ratings and Research on Wednesday revised India’s GDP growth rate forecast to the six year low of 6.7 per cent for the current financial year, down from its earlier forecast of 7.3 per cent. The Fitch Group’s agency expects FY20 to be the third consecutive year of subdued growth.
Dr Sunil Kumar Sinha, Principal Economist, India Ratings and Research, said the slew of measures announced by Finance Minister Nirmala Sitaraman last week were likely to support growth only in the medium term.
He said the private consumption, which has been the mainstay of aggregate demand, had come under pressure in urban as well as rural areas lately. Devendra Kumar Pant, Chief Economist, India Ratings and Research, pointed out that household savings had fallen over the last five years from 23 per cent to 17 per cent.
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The agency said the growth would be pushed down by a slowdown in consumption demand, delayed and uneven progress of monsoon so far, decline in manufacturing growth, inability of Insolvency and Bankruptcy Code to resolve cases in a time-bound manner, and rising global trade tension adversely impacting exports.
“While the reduced income growth of households has taken the sting out of the urban consumption, drought and near-drought conditions in three of the past five years coupled with collapse of food prices has taken a heavy toll on rural consumption,” Sinha said.
He added that even investment, particularly private corporate investment, had remained sluggish over the past few years.
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“We hear that private investment is down and to make up for it, government is spending on infrastructure and asset creation. But Centre and states together accounted for only 12 per cent contribution towards investment between 2012 and 2018. No matter how much the government spends on investment, it won’t make much of a difference as far as revival of investment is concerned,” Sinha said, adding that unless investment by private corporations and households revives, revival of broad-based investment activity in the economy won’t take place.
He said while households’ major investment is in real estate, that of private corporation is in machinery and equipment. “Given the stress in the real estate sector and manufacturing sector capacity utilisation hovering in 70%-76% range since FY14, India Ratings believes revival of private investment demand will be a long drawn process.”
