Fitch group firm India Ratings and Research on Wednesday lowered its GDP growth forecast India to six-year low at 6.7 per cent in the current fiscal as against 7.3 per cent projected earlier.

The 'band-aid' measures would not help the economy as it faces several cyclical and structural issues, said the rating agency, referring to the recent stimulus measures by the government to arrest slowdown in some key sectors.

With most engines of growth stuttering, the economic slowdown would continue and the April-June GDP figure could slip to 5.7 per cent. The research and rating agency said that it would be the fifth consecutive quarter of declining growth.

The agency does not see private investment, one of the key drivers of economic growth, picking up anytime soon as manufacturing sector capacity utilisation has hovered in the range of 70-76 per cent since FY14 and unless it reaches optimum level, no company would make investments. Further, the stress in the real estate sector continues.

Sunil Kumar Sinha, Principal Economist and Director (public finance) at the ratings firm, said hoping that government expenditure alone would change the investment landscape would be expecting too much.

The slowing economy could also mean businesses failing and hence a rise in non-performing assets (NPAs) of banks.

Among the factors pulling down growth are slowdown in consumption, delayed and uneven progress of monsoon, decline in manufacturing, inability of Insolvency and Bankruptcy Code (IBC) to resolve cases in a time-bound manner and rising global trade tension impacting exports.

Terming the recent measures announced by Finance Minister Nirmala Sitharaman as insufficient to support high growth, the agency said that they will support growth only in the medium term.

It, however, expects GDP growth to recover to 7.4 per cent in the second half of the financial year, mainly on account of the base effect.

The Fitch group firm said that since major contributors to the economy's investment pie are households (which include unorganised and unregistered enterprises, 38.6 per cent) and private corporations (37.9 per cent), their spendings hold the key for reviving broad-based investment activity in the economy.

Of the other two demand-side growth drivers, the agency said that government expenditure continues to be steady and is expected to grow at 10.6 per cent in FY20 while exports are facing headwinds due to rising trade tensions and weakening global GDP growth.

Published On : 28-08-2019

Source : SME Times