After a broad-based deceleration in the initial quarters of this fiscal, India’s growth rate is projected to fall to 6% in 2019-20, the World Bank said on Sunday, in what was the sharpest downward revisions of its growth projections for South Asian countries.
However, the bank in its latest edition of the South Asia Economic Focus said the country was expected to gradually recover to 6.9% in FY21 and 7.2% in FY22 as it assumed that the monetary stance would remain accommodative, given benign price dynamics. The World Bank’s previous projection for India was 7.5%, and this was announced in April.
Moody’s Investors Service had last Thursday cut its forecast for India’s FY20 GDP growth by 40 bps to 5.8%, in what reflected a continuing trend of such downward revisions by prominent domestic and foreign agencies. In its latest bi-monthly monetary policy statement on October 4, the RBI cut its growth projection for the domestic economy by a sharp 80 bps to 6.1%, citing that the slump in real GDP growth to 5% in the first quarter of FY20 has been followed by “generally weaker high frequency indicators for the second quarter”.
The latest estimate by Moody’s is the lowest FY20 GDP growth forecast for India by a leading agency. “The drivers of the deceleration are multiple, mainly domestic and in part long-lasting,” Moody’s wrote.
The World Bank report, which has been released ahead of its annual meeting with the IMF, noted in the first quarter of 2019-20, the economy experienced a significant and broad-based growth deceleration with a sharp decline in private consumption on the demand side and the weakening of growth in both industry and services on the supply side.
Reflecting on the below-trend economic momentum and persistently low food prices, the headline inflation averaged 3.4% in 2018-19 and remained well below the RBI’s mid-range target of 4 per cent in the first half of 2019-2020. This allowed the RBI to ease monetary policy via a cumulative 135 basis point cut in the repo rate since January 2019 and shift the policy stance from “neutral” to “accommodative”, the World Bank said.
The report said consumption was likely to remain depressed due to slow growth in rural income, domestic demand (as reflected in a sharp drop in sales of automobiles) and credit from non-banking financial companies (NBFCs).
However, the investment would benefit from the recent cut in effective corporate tax rate for domestic companies in the medium term, but also will continue to reflect financial sector weaknesses, the report said.