What could hurt India’s growth this year? India Ratings cuts growth forecast 2nd time in 4 months

By: |
Updated: August 28, 2019 6:40:11 PM

India Ratings, which had already downgraded India’s economic growth projections for FY20, has further cut its growth projection.

slowdown, india ratings, rating agency, gdp growth projection, gdp, demand, consumptionCapacity utilisation in the manufacturing sector is hovering around 70 per cent since the last five years. (Bloomberg image)

A prolonged economic slowdown, now unanimously being witnessed by individuals, companies and the government, has compelled various rating agencies to further downgrade the growth projection of India’s GDP. India Ratings, which had already downgraded India’s economic growth projections for FY20, has further cut its growth estimates, showing a bit of pessimism for growth in the Indian economy. India Ratings has cut the GDP growth projections for the second time in four months. Initially, it revised the growth projection downwards from 7.5 per cent to 7.3 per cent in April, and now it has further been revised downwards to 6.7 per cent, which will be a 6-year low. Even Q1 FY20 is expected to be the fifth consecutive quarter when the GDP growth has declined. India Ratings expects Q1 GDP growth rate to be 5.7 per cent.

 It is likely that the weakness in global and domestic demand may pull down the overall growth of the current financial year, though the growth in the second half of FY20 is expected to be slightly higher due to the base effect. The government has continued to bring new measures to revive the economy, but it has failed to improve the animal spirits.

Principal Economic Advisor Sanjeev Sanyal had said in an interview that the government has been continuously indicating about the slowdown in its previous reports and the slowdown is due to weakening demand in domestic as well as the global economy. However, he clarified that the current scenario of slowdown does not indicate any kind of economic crisis. 

The downward revision of the growth estimation has been attributed to a slowdown in consumer demand, delayed and uneven progress of the monsoon so far, a decline in the manufacturing sector, inability of Insolvency and Bankruptcy Code to resolve cases in a time-bound manner and rising global tension adversely impacting exports. 

The decline in household savings and low corporate investment have hit urban consumption lately. Private consumption in both rural and urban areas is suffering. In the rural areas, drought or near-drought situation in three of the five years has pulled down the consumption. Major investment in households is in real estate, whereas the major investment in corporates is machinery and equipment. However, real estate is under stress and the capacity utilisation in the manufacturing sector is hovering around 70 per cent since the last five years, which points out that the recovery in the private investment demand will take a substantial amount of time to recover. 

Do you know What is Repo Linked Lending Rate (RLLR), Wholesale Price Index (WPI), Public Debt, Finance Commission Grants & Other Transfers, Economic Survey? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.