Ind-Ra downgrades FY20 GDP growth projection by 0.2% to 7.3%

India’s gross domestic product (GDP) growth for FY20 has been marked marginally down to 7.3 percent from its previous forecast of 7.5 percent by India Ratings and Research (Ind-Ra), a unit of Fitch, the rating agency announced in a release on Tuesday.

The rating firm provided three reasons for its downward projection:

The prediction of lower-than-normal monsoon for 2019 and the continued agrarian distress

The loss of momentum in the industrial output growth, especially manufacturing and electricity and

The slow progress on cases referred to the National Company Law Tribunal (NCLT) under the Insolvency and Bankruptcy Code (IBC) 2016, that has led to the resolution of the non-performing assets of the banking sector becoming a long-drawn-out process.

While the Indian Meteorological Department (IMD) has predicted a near-normal forecast for monsoon this season, the private weather services firm, Skymet, predicts below-normal monsoon this year.

"With projections of an El Nino, there are chances of below normal monsoon versus chances of normal monsoon", GP Sharma of Skymet told CNBC-TV18 last month.

Industrial output growth grew by a mere 0.1 percent in February, according to data released by the Central Statistics Office (CSO).

Several cases referred to the NCLT still remain no close to resolution and the problem of stuck capital will prove a hindrance to the economic growth, predicts Ind-Ra, “Inability to bring the stuck capital back into the production process will have implications for investment recovery."

“Investment expenditure growth, as measured by gross fixed capital formation (GFCF), has, therefore, been downwardly revised to 9.2 percent for FY20 (FY19: 10.0 percent) from the earlier forecast of 10.3 percent. Although the average 9.5 percent investment growth during FY17-FY19 is quite healthy compared with the average 3.6 percent GFCF growth over FY14-FY16, the current investment recovery is heavily dependent on government capex spending as incremental private corporate capex is yet to revive”, the report adds.

The rating firm has downgraded agricultural growth by 0.5 percent.

“Ind-Ra estimates agricultural gross value added growth at 2.5 percent (earlier forecast 3.0 percent) for FY20 compared with the 2.7 percent recorded for FY19.”

It lists five risk factors for India’s FY20 economic outlook:

Inflation, which may revive from 4QFY20.

The rise in household’s savings-investment gap.

Tardy progress in resolving the banking sector’s non-performing assets.

Revival of investment in the real estate sector/corporate sector investment.

Escalation of trade friction/deglobalisation.