India Ratings pegs FY21 GDP at 5.5%, warns of downside risks

Source: The Economic Times, Jan 22, 2019

New Delhi: Ratings agency India Ratings and Research has pegged India’s Gross Domestic Product (GDP) growth for 2020-21 at 5.5%, above the 5% growth that India’s statistics office expects for 2019-20.

“India Ratings and Research (Ind-Ra) expects gross domestic product (GDP) to grow at 5.5% year-on-year in FY21, however, the downside risks persist,” the agency said in a statement on Wednesday.

The slowdown, in the agency’s view, is a combination of several factors. These are an abrupt and significant fall in lending by non-banking financial companies close on the heels of a slowdown in bank lending, reduced income growth of households coupled with a fall in savings and higher leverage, and inability of the dispute resolution/judicial systems to quickly unlock the stuck capital.

“Although some improvement in FY21 is expected, these risks are going to persist,”

As a result, the Indian economy is stuck in a phase of low consumption as well as low investment demand.

It expects the shortfall in the tax plus non-tax revenue to result in the fiscal deficit slipping to 3.6% of GDP (budgeted 3.3%) in FY20, even after accounting for the surplus transferred by the RBI.
Ind-Ra believes a strong policy push coupled with some heavy lifting (even if this requires using the escape clause as suggested by the FRBM Review Committee headed by N K Singh) by the government is required to revive the domestic demand cycle and catapult the economy back into a high growth phase.

The agency expects retail and wholesale inflation to average 3.9% and 1.3%, respectively, in FY21 (FY20: 4.4% and 1.4%). Food and crude oil prices are the key drivers of inflation in India.

External environment continues to be challenging for exports due to the trade friction and protectionist policy pursued by many developed economies.

“As a result, India’s exports of goods and services are likely to witness negative growth of 2% in FY20,” India Ratings said.

UN revises growth forecast to 5 per cent for India in current fiscal

Source: The Economic Times, Jan 17, 2019

The United Nations (UN) has revised its forecast for India’s growth in the current fiscal to 5% on Friday, down from 5.7% it had mentioned in its World Economic Situation and Prospects (WESP) 2020 report released on Thursday.

Its estimate for FY21 was also further downgraded to 5.8%-5.9% from 6.6% in the report, said Nagesh Kumar, head of the UN economic and social commission for Asia and the Pacific, while presenting the report in Delhi.

Since the report was finalised in October it did not take into account the second quarter results and hence the outlook has been revised, Kumar said.

This comes as a further downgrade from last year’s WESP 2019 report which had pegged India’s gross domestic product (GDP) growth at 7.6% in FY20 and 7.4% for the next fiscal.

According to the report, one in five countries will see its per capita income stagnate or decline this year, however, India will see its per capita income rise at above the 4% level in 2020.

The annual report has forecast global growth to improve to 2.5% from 2.3% last year if downside risks such as trade war and geopolitical tensions do not flare up.
For the South Asia region, the report estimates growth to pick up to 5.1% in 2020 after a decade-low 3.3% last year.

Although India is the main economy in the region with a 70% weightage in the UN’s calculations, Bangladesh looks to be pulling the average up since its economy is the fastest growing in the region at 8.1% this fiscal, as per the report.

In terms of policy recommendations for a slowing global economy, the report calls for an end to the reliance on monetary policy and advocated for more fiscal measures.

According to Kumar, the focus on monetary policy easing is enabling excess liquidity to flow into stock markets rather than productive sectors of economies. This creates an unhealthy situation in which stock markets are bullish while economies are slowing down.

“At this moment, the single biggest priority for the finance minister should be to revive growth. We must use all the available fiscal space to boost growth. Although fiscal consolidation is important, it can be a medium-term focus,” he said about India.

World Bank pegs India’s growth for FY20 at 5%

Source: The Economic Times, Jan 09, 2019

NEW DELHI: The World Bank on Wednesday cut India’s growth for financial year 2020 to 5% from 6% estimated earlier, a day after the country’s statistics office pegged growth in the current financial year at 5%, the lowest in 11 years.

The multilateral lender expects the country’s growth to recover only slightly to 5.8% in the next fiscal year.

The bank’s Global Economic Prospects report released on Wednesday cited a lingering weakness in credit from non-banking financial companies (NBFCs) as the main cause for the downgrade.

This is the slowest growth forecast since the 3.1% rate recorded in financial year 2008-09 when the global financial crisis had derailed the economy.

The World Bank’s latest update is also in line with the Reserve Bank of India’s October policy estimate in which it slashed the economy’s expected growth to 5% this fiscal year.

Global economic growth, is expected to rise to 2.5% in the current calendar year, underpinned by a gradual recovery in investment and trade from last year’s significant weakness, although downward risks persist, the report said.

Growth in advanced economies is likely to slip to 1.4% in calendar year 2020, in part due to softness in the manufacturing sector. Growth in the US is expected to ease to 1.8% due to tariff increases, while weak industrial activity will bring down the Euro region’s growth to 1% this calendar year, the report said.

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First advance estimates pegs GDP growth at 5 per cent for FY20

Source: The Economic Times, Jan 08, 2019

New Delhi: India’s economy is forecast to grow 5% this fiscal, its slowest pace in 11 years, estimates released by the government on Tuesday showed, increasing pressure on finance minister Nirmala Sitharaman to announce measures to revive demand and boost investments in the upcoming budget.

The projected growth rate of gross domestic product (GDP) in FY20 is the lowest since FY09, the year of the global financial crisis, when GDP grew 3.1%.

It reflects a sharp decline from 6.8% in FY19 as the economy is hit by a broad-based slowdown, fragile consumer sentiment and stagnant investments.

The first advance estimates released by the National Statistical Office (NSO) on Tuesday suggest a tepid recovery in second half of the fiscal with implied growth at 5.2% against 4.8% recorded in the first half for an overall 5% rise in GDP.

“It gives a big jolt to the ambition of making India a $5-trillion economy by 2024-25. It is becoming harder to do so,” former finance secretary SC Garg said.

The CSO estimate is in line with the Reserve Bank of India’s projection of 5% growth and substantially lower than the 7% given by the Economic Survey for FY20. Gross value added (GVA) growth is seen at 4.9% against 6.6% in FY19.

Nominal GDP growth, without adjusting for prices, is estimated at 7.5% — a 42-year low according to SBI — well below the 11.2% recorded in FY19, which suggests muted corporate performance and subdued tax collections, and will add to fiscal pressure.

“The growth forecast is on expected lines and reinforces the general trend of slowdown,” said Madan Sabnavis, chief economist at CARE Ratings. “The private sector is not investing,” he said.

The government has already announced a number of measures to prop up the economy, including a sharp cut in corporate tax rate, support for stalled housing projects and Rs 102 lakh crore plan for infrastructure, but experts have asked for more in the upcoming budget.

“This is the time for fiscal measures… one needs to be pragmatic on macro policy,” said NR Bhanumurthy, economist at National Institute of Public Finance and Policy. “The slowdown in economic growth implies the government will have to come up with a fiscal stimulus in the budget.”

There are suggestions for cut in personal income tax to stimulate demand. Saugata Bhattacharya, chief economist at Axis Bank, suggested better credit delivery to lift growth.

“The key to a quick recovery is consumption,” said Soumya Kanti Ghosh, group chief economic adviser, SBI.

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Fitch lowers India GDP growth to 4.6% in FY20

Source: The Economic Times, Dec 20, 2019

Fitch Ratings on Friday cut its growth forecast for India to 4.6 per cent for the 2019-20 fiscal from the previous estimation of 5.6 per cent after factoring in significant deceleration in past few quarters due to credit squeeze and deterioration in business and consumer confidence.

It reaffirmed India’s rating at ‘BBB-‘ with a Stable Outlook saying the rating balances a still strong medium-term growth outlook compared with similar category peers and relative external resilience stemming from solid foreign-reserve buffers against high public debt, a weak financial sector and some lagging structural factors, including governance indicators and GDP per capita.

The Fitch’s FY2019-20 growth forecast is lower than 4.9 per cent projection by Moody’s and 5.1 per cent by Asian Development Bank. The Reserve Bank of India (RBI) has also revised GDP growth forecast to 5 per cent for 2019-20 from 6.1 per cent projected in October.

“Our outlook on India’s GDP growth is still solid against that of peers, even though growth has decelerated significantly over the past few quarters, mainly due to domestic factors, in particular, a squeeze in credit availability from non-banking financial companies (NBFC) and deterioration in business and consumer confidence,” Fitch said in a statement on Friday.

“We expect growth to gradually recover to 5.6 per cent in FY2020-21 and 6.5 per cent in FY2021-22 with support from easing monetary and fiscal policy and structural measures that may also support growth over the medium term.”

It said its rating for India incorporates the expectation of moderate slippage in the fiscal deficit target of 3.3 per cent of GDP in FY2019-20.
“The government is again facing a trade-off between stimulating the economy and reducing the deficit in the medium term. Some fiscal slippage has occurred in recent years against government targets, even during periods of sustained stronger growth.

“The FY20 deficit target had already been exceeded by end-October due to a weak revenue intake, and deceleration of nominal quarterly growth suggests further revenue pressure for the rest of the financial year,” it said.

The government has indicated that its corporate tax rate cut could lower revenue by 0.7 per cent of GDP in FY2019-20 and hopes to finance spending by more aggressive asset divestments, including Air India and Bharat Petroleum Corporation.

“We believe there is a risk of more significant fiscal loosening in the event of continued weak GDP growth, for example, in the context of lingering problems in the NBFC sector,” it said.

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Centre releases over Rs 35,000 crore as pending GST compensation to states

Source: Business Standard, Dec 17, 2019

New Delhi: Ahead of the GST Council meeting on Wednesday, the Centre on Monday sought to soothe the frayed nerves of states by releasing over Rs 35,000 crore as pending compensation. “The central government has released GST compensation of Rs 35,298 crore to states and union territories today (Monday),” the Central Board of Indirect Taxes and Customs (CBIC) said in a tweet.

This is likely to give a positive signal to states for the upcoming meeting, which may take up various options to raise funds to compensate states. Earlier in the day, Union Finance Minister Nirmala Sitharaman assured states that the Centre would not “renege” on the promise of GST compensation.

There was, however, some confusion over the period for which the compensation amount was released. States said with this payment they got compensation dues till September.

“Compensation has been released to the states for the months of August and September. We are hopeful that compensation for October and November will be released by the end of the month,” Bihar Deputy Chief Minister Sushil Modi told Business Standard.

Earlier, Parliament’s Standing Committee on Finance had said the Centre had paid Rs 45,745 crore as compensation to states for the first four months of the current financial year. The dues were paid in June and August. However, according to Sitharaman’s statement in the Rajya Sabha, the Centre had released compensation of Rs 65,250 crore till October this year.

This, she said, was Rs 9,783 crore more than what the Centre collected through the compensation cess — Rs 55,467 crore as of October 31 this year. Even BJP-ruled states raised eyebrows over Sitharaman’s response to the compensation cess issue.

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India's economic growth likely to remain subdued in near future: Report

Source: The Economic Times, Dec 02, 2019

NEW DELHI: India’s economic growth is expected to remain subdued in near future as the slowdown has deepened and is likely to remain extended for a longer duration than previously anticipated, says a report.

According to a Dun & Bradstreet report, a pick-up in the industrial production will only be gradual as investment remains subdued.

Moreover, rural sector demand is likely to remain affected by the recent floods and lower agricultural output.

Besides, most of the sectors from auto to real estate are under stress and this is reflected in the profit margins of the corporate and revenue collections of the government.

“The conundrum of soaring domestic stock market indices in India, slowing growth, rising inflation, and elevated unemployment presents a complex challenge for policymakers to address. The slowdown has deepened and is now expected to remain extended than previously anticipated,” said Arun Singh, Chief Economist Dun & Bradstreet India.

He further said that to address the current issue, both the Centre and the state governments should gear up to execute the infrastructure projects in pipeline.

“This would provide employment opportunities for the rural and urban poor. Secondly, it should work towards ensuring that auditing norms become more stringent,” Singh said, adding that boosting consumption seems difficult when incomes are not growing, food inflation is rising and governance issues have increased in banking and non-banking sector.

“Reinforcing confidence of stakeholders in the ecosystem will be one of the biggest challenges for the government to tackle; there are no easy fixes,” Singh said.

India’s GDP growth hit an over six-year low of 4.5 per cent in July-September 2019, dragged mainly by deceleration in manufacturing output and subdued farm sector activity, according to official data released on Friday.

The pace of GDP growth has moderated from the 5 per cent rate in April-June and 7 per cent in July-September quarter of 2018.