Fitch firm cuts India’s GDP forecast to six-year low at 6.7%

Noting that ‘band-aid’ measures would not help the economy as it faces several cyclical and structural issues, Fitch group firm India Ratings and Research has lowered its GDP growth forecast to six-year low at 6.7 per cent in the current fiscal as against 7.3 per cent projected earlier.

With most engines of growth stuttering, the economic slowdown would continue and the April-June GDP figure could slip to 5.7 per cent. The research and rating agency said that it would be the fifth consecutive quarter of declining growth.

The agency does not see private investment, one of the key drivers of economic growth, picking up anytime soon as manufacturing sector capacity utilisation has hovered in the range of 70-76 per cent since FY14 and unless it reaches optimum level, no company would make investments. Further, the stress in the real estate sector continues.

Sunil Kumar Sinha, Principal Economist and Director (public finance) at the ratings firm, said hoping that government expenditure alone would change the investment landscape would be expecting too much. The slowing economy could also mean businesses failing and hence a rise in non-performing assets (NPAs) of banks.

Among the factors pulling down growth are slowdown in consumption, delayed and uneven progress of monsoon, decline in manufacturing, inability of Insolvency and Bankruptcy Code (IBC) to resolve cases in a time-bound manner and rising global trade tension impacting exports.

Terming the recent measures announced by Finance Minister Nirmala Sitharaman as insufficient to support high growth, the agency said that they will support growth only in the medium term.

The Fitch group firm said that since major contributors to the economy’s investment pie are households (which include unorganised and unregistered enterprises, 38.6 per cent) and private corporations (37.9 per cent), their spendings hold the key for reviving broad-based investment activity in the economy. Of the other two demand-side growth drivers, the agency said that government expenditure continues to be steady and is expected to grow at 10.6 per cent in FY20 while exports are facing headwinds due to rising trade tensions and weakening global GDP growth.

The Indian economy likely expanded at its slowest pace in more than five years in the April-June quarter, driven by weak investment growth and sluggish demand, according to economists polled by Reuters.

That would reinforce concerns seen in the minutes from the central bank’s August meeting, which showed policymakers were worried about weak growth and indicated further rate cuts in the next few months to boost the slowing economy.

The poll median showed the economy was expected to have grown at a year-on-year pace of 5.7% in the June quarter, a touch slower than 5.8% in the preceding three months. But a large minority - about 40% of nearly 65 economists - expect an expansion of 5.6% or lower.

If the forecast is realised, it would be the weakest start in the first three months of a fiscal year in seven years.

“The deceleration in growth that commenced in the second quarter of the fiscal year ending March 2019 is likely to have continued,” said Rini Sen, India economist at ANZ.

Meanwhile, Indian equity markets closed lower on Wednesday ahead of the release of the gross domestic product (GDP) data for the first quarter of financial year 2019-20 on August 31, which is expected to indicate slower growth rate for the fourth consecutive quarter.

Weakness in the global trade activity continued to impact metal stocks. The NSE metal index fell 3.36 per cent, the struggling auto index declined 1.88 per cent and banks scrips 1.14 per cent.

The Sensex closed 189.43 points or 0.50 per cent lower at 37,451.84 and the Nifty settled 59.25 points or 0.53 per cent lower at 11,046.10.

Indo-Asian News Service