India’s gross domestic product is forecast to grow at 5 percent in 2019-20 by FICCI. The industry body has pegged GDP to grow at 5.5 percent in 2020-21.
Indian economy has been struggling with a prolonged slowdown and GDP growth in the September quarter dipped to 4.5 percent, lowest in over six years.
According to the FICCI Economic Outlook Survey, the economy is achieve a 5 percent growth rate for FY20. The survey further added that the services sector will see the highest growth at 7.2 percent.
“While the median growth forecast for agriculture and allied activities has been put at 2.6 percent for 2019-20; the industry and services sector are expected to grow by 3.5 percent and 7.2 percent respectively during the current year. Growth is likely to improve to 5.5 percent in 2020-21 as per the projections,” according to the FICCI Economic Outlook Survey.
The FICCI survey has pegged Q3FY20 GDP growth at 4.7 percent.
Major concerns
The survey highlighted misgivings about exports. “Concerns remain on external front with exports projected to contract in 2019-20. Merchandise exports are expected to decline by 2.1 percent, while imports are expected to decline by 5.5 percent during the year.”
It listed global slowdown, geopolitical tensions and the fate of the US-China deal among the primary risk factors impacting India’s growth.
“Moreover, median current account deficit forecast was pegged at 1.4 percent of GDP for 2019-20. Moderation in global growth forecast, escalating geopolitical tensions, and uncertainty around trade deal between US-China and Brexit outcome still form major risk factors to India’s growth in 2020,” the report said.
The economists in the survey—which was conducted during the months of December and January 2019-20—believe that the slowdown, although longer than anticipated, has nearly bottomed out and are of “the view that the economy will follow a U-shaped recovery this time around which means that a sustained uptick in growth will take some time to shape up.”
The report added: “Participating economists cited various reasons, including higher amount of projects sanctioned by financial institutions, greater deployment of funds in fixed assets by corporates, increase in government capex spending and higher pay outs to support rural income schemes, for their optimism about the rebound in India’s growth.
“However, continued weak consumer sentiments, lack of trust amongst lenders, worsening of global trade wars and rising geo-political tensions were cited as the major downside risks to growth.”
Diagnosis and revival
Simplification of the taxation system and "aggressive disinvestments and monetisation of government assets" have been suggested as a diagnosis to revive the flagging economy.
At the 2020 Union Budget announcement later this week, there is an expectation of the government missing the 3.4 percent fiscal deficit target. However, the economist in the FICCI survey have warned against “any changes in the GST [goods and services tax] rates to improve revenue collections as it would prove to be counterproductive.”
Instead the “economists recommended undertaking expansionary fiscal and monetary policies along with a slew of reforms to tackle the structural problems facing the economy.”
The report added: “It was felt that more measures must also be taken to formalise the informal sector by mandating e-payments. Aggressive disinvestments and monetisation of government assets (real estate, telecom spectrum) was the need of the hour to alleviate stress on fiscal balances.
“In addition, the government must also consider rationalising subsidies to reduce leakages and prevent wasteful expenditure.”
FICCI’s projection comes within a fortnight of the International Monetary Fund (IMF) revising the GDP down to 4.8 percent. The IMF projected the FY21 GDP growth at 5.8 percent.
IMF chief economist Gita Gopinath said that recovery will be seen in the second half of FY21.
“One of the major factors behind the downward revision was this weakness in credit growth. But there is also some part of it that has to do with weakness in rural income growth. We are expecting to see that about the first half of fiscal year 2020-2021 is when we should start seeing the recovery happening. But we do have growth going back up to 5.8 percent in the following fiscal. But there are a couple of month’s stabilisation and then we should see a recovery,” Gopinath said in an interview with CNBC-TV18 at the sidelines of the World Economic Forum in Davos earlier this month.
