India Ratings lowers GDP growth forecast again

New Delhi, November 26

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Indian economy may have slowed for the sixth consecutive quarter in July-September to 4.7%, Fitch group firm India Ratings and Research said today, as it lowered GDP growth forecast for current fiscal for the fourth time.

The Indian economy expanded by 5% in April-June, its slowest annual pace since 2013. The 4.7% projection for the second quarter of the current fiscal would mark six consecutive quarters of slowing growth, a first since 2012.

This comes despite a recent series of fiscal stimulus, including reduction in corporate tax rates.

“India Ratings and Research has revised its GDP growth forecast for FY20 to 5.6%. This is the fourth revision and has come in after the agency had revised its FY20 GDP growth forecast only a month ago to 6.1%,” the rating agency said.

The revision, it said, became “inevitable as the high-frequency data now suggests that the agency’s estimate of 2Q FY20 GDP growth coming in a little higher than 5% is unlikely to hold”.

“The new projection suggests that 2QFY20 GDP growth is likely to be 4.7%,” it said. Second-quarter GDP numbers are likely to be announced on Friday.

“Despite favourable base effect, declining growth momentum suggests that even the 2HFY20 will now be weaker than previously forecasted and is likely to come in at 6.2 per cent,” India Ratings said.

India’s growth outlook has weakened sharply this year, with a crunch that started with the non-banking finance institutions spreading to retail businesses, car-makers, home sales and heavy industries.

India Ratings’ growth forecast is a tad lower than 5.8% revised outlook for India projected by Moody’s Investors Service.

This comes despite the measures taken by the Modi government to arrest the growth slowdown. In September, it announced a cut in the corporate tax rate to 22% from 30%. It also lowered the tax rate for new manufacturing companies to 15% to attract fresh foreign direct investments.

The tax rate reductions bring India in line with rates in other Asian countries.

The government’s other initiatives include bank recapitalisation, the mergers of 10 public sector banks into four, support for the auto sector, plans for infrastructure spending, as well as tax benefits for startups.

India Ratings (Ind-Ra) said the 5.6% GDP growth will require “heavy lifting by the government”.

“Although government expenditure did not witness much traction in 1QFY20 due to parliamentary elections, it picked up significantly in 2QFY20. Combined capital and consumption expenditure of central and 20 states government in 2QFY20 grew 37.8% and 20.1%, respectively, and Ind-Ra expects it to continue in 2HFY20 leading to the central government’s fiscal deficit coming in at 3.6% of GDP,” the statement said. — PTI