Good news for Modi: India Ratings upgrades GDP growth forecast to 7.4%, but here is warning too

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Updated: April 5, 2018 2:02:53 PM

In what may come as a boost to economic policies followed by Narendra Modi government, India’s economic growth forecast has been revised to 7.4 percent from 7.1 percent earlier in FY19 by India Ratings.

In a bid to embarrass Opposition, BJP and NDA MPs to give up salary for disrupted part of Parliament's Budget SessionIndia Ratings and Research report further said that any possibility of a rate cut is low during FY19.

In what may come as a boost to economic policies followed by Narendra Modi government, India’s economic growth forecast has been revised to 7.4 percent from 7.1 percent earlier in FY19 by India Ratings. However, there remain a few headwinds which must be looked into by the government soon so that the growth doesn’t slow down, the report said. While higher growth in agriculture and industrial sector remains may push overall economic growth from production side, both private and public expenditure is likely to fuel growth surge on expenditure side.

The report by India Ratings and Research (Ind-Ra) named mounting non-performing assets (NPAs) in the banking system, soaring bond yields, rising protectionism and tightening fiscal conditions as the major hurdles lying on the road of India’s economic growth.

The latest decision by the Reserve Bank of India (RBI) to allow banks to spread their provisioning for marked-to-market losses on ‘available for sale’ and ‘held for trading’ portfolios for 3QFY18 and 4QFY18 equally up to four quarters may help the banks, Ind-Ra report said. This measure may provide banks a much needed relief from accounting perspective to the banks, the report said. It may help in soothing the surge in G-sec bond yields.

The higher market borrowings in second half of FY19, if accompanied by adverse fiscal and inflationary developments could put more pressure on the bond market, Ind-Ra cautioned.

The research report also said that in wake of recent easing witnessed in the WPI and CPI inflation data pressure on the central bank to cut policy rates has subsided. The wholesale and retail inflation has come down to 2.48% and 4.44%, respectively, in the month of February 2018 from 2.84 percent and 5.07 percent for the month of January 2018.

India Ratings and Research report further said that any possibility of a rate cut is low during FY19. The ability of the Indian economy to face shocks has improved substantially over the last two decades and it will keep doing such without having significant impact on growth.

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