Chennai: India’s gross domestic product (GDP) growth for financial year 2020 (FY20) will be marginally down to 7.3 per cent from the previous forecast of 7.5 per cent, a ratings and analytics agency has said.
India Ratings and Research (Fitch Group) in its recent report has stated that the loss of momentum in the industrial output growth, expected lower-than-normal monsoon for the year and continued agrarian distress, are reasons for it.
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, is also a key reason, the report said.
Inability to bring the stuck capital back into the production process will have implications for investment recovery, believes India Ratings and Research.
“Investment expenditure growth, as measured by gross fixed capital formation (GFCF), has, therefore, been downwardly revised to 9.2 per cent for FY20 (FY19: 10 per cent) from the earlier forecast of 10.3 per cent. Although the average 9.5 per cent investment growth during FY17-FY19 is healthy compared with the average 3.6 per cent GFCF growth over FY14-FY16, the current investment recovery is heavily dependent on government capex spending as incremental private corporate capex is yet to revive,” the report said.
However, consumption demand, as measured by private final consumption expenditure, is likely to grow 8.1 per cent in FY20, supported by moderate inflation and favourable demographics, it said.
“In view of the ongoing agrarian distress, consumption demand is likely to be more pronounced in urban areas. However, schemes based on the concept of universal basic income may provide a fillip to rural consumption in H2FY20. Also, one-time support to consumption demand in FY20 may come from election-related expenditure,” the report stated.
Regarding exports, it noted that trade frictions arising due to US actions/counteractions by affected countries and a likely slowdown in the global GDP growth will keep the external environment challenging.
The share of exports (goods and services) in India’s GDP increased to 25.4 per cent in FY14 from 12.8 per cent in FY01 but declined thereafter to 19.7 per cent in FY19, the report said.
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 FY20.
The report also stated that the Indian rupee is likely to average 71.36 against the US dollar in FY20 due to capital amount recording a surplus of $61.6 billion, supported by banking capital inflows and foreign portfolio investments.