Elections to support GDP growth; Indian economy more stable than major Asian nations: Moody’s

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Published: March 1, 2019 11:34:17 AM

Indian economy is expected to grow at 7.3 per cent in calendar year 2019 and 2020, and the government spending announced ahead of elections this year which will support near-term growth, Moody's said on Friday.

India to grow at 7.3 pc in 2019, 2020: Moody'sIndia to grow at 7.3 pc in 2019, 2020: Moody’s

Indian economy is expected to grow at 7.3 per cent in calendar year 2019 and 2020, and the government spending announced ahead of elections this year which will support near-term growth, Moody’s said on Friday.

The US-based rating agency said that the country is less exposed to a slowdown in global manufacturing trade growth than other major Asian economies and emerging markets and is poised to grow at a relatively stable pace in the two years.

“We expect India’s economy to grow around 7.3 per cent in both years (2019, 2020),” Moody’s said in its quarterly Global Macro Outlook for 2019 and 2020.

Moody’s growth estimates in based on calendar year. India, however, measures its economic growth on the basis of fiscal year (April-March).

In 2018-19 fiscal, ending March 2019, Indian economy is estimated to have grown 7 per cent, lower than 7.2 per cent in 2017-18.

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Moody’s said the announcement in Interim Budget 2019-20 on direct cash transfer programme for farmers and the middle-class tax relief measures will contribute a fiscal stimulus of about 0.45 per cent of GDP.

“These measures will support growth through consumption over the near term, albeit at a fiscal cost…

“In India, government spending announced ahead of elections this year will support near-term growth,” Moody’s said.

It said RBI is likely to be able to maintain their current monetary policy stance after some tightening last year.

The RBI cut its benchmark policy rate in February and changed the policy stance to “neutral” from “calibrated tightening”. Inflation measures have steadily declined since the middle of 2018.

On banking sector, Moody’s said, although the overall strength of the system is improving, it remains a constraint on the economy.

In February 2019, the government provided further capital infusions to public sector banks. These measures, combined with the application of the Prompt Corrective Action framework, which requires timely recognition of bad loans, and resolution of bad loans through the Insolvency and Bankruptcy Code, are helping to address solvency and asset quality challenges.

“However, a complete turnaround of the banking system requires more time amid slower-than-expected resolution of legacy problem loans,” it said.

Non-performing assets declined to 10.8 per cent in September 2018 from a peak of 11.5 per cent in March 2018. The central bank expects this ratio to improve further to 10.3 per cent in March 2019.

Moody’s said, with range-bound oil prices, export growth has outpaced import growth for the last two years. Fiscal spending on infrastructure and the rural economy should continue to support domestic activity.

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