Ratings agency Crisil has cut India’s FY20 gross domestic product (GDP) growth estimate to 6.9 percent from 7.1 percent. Paul Gruenwald, chief economist of S&P Ratings discusses the GDP forecast and the factors affecting Indian economy.
“We do see this as a transitory dip. The focus is not so much where we are going to be in the next couple of quarters but whether India can regain healthier rate of trend growth," said Gruenwald.
"We think that on the back of the many of the reforms we have seen in recent years such as the goods and services tax (GST) and the bankruptcy law once we get through this soft patch, we should be able to get to 7-7.5 percent trend growth. However, we do see this as a transitory soft patch, so growth will be below potential but we expect it to pick up in the next year,” he added.
In terms of the impact of the global slowdown, he said: “The global weakness is concentrated in manufacturing and trade and those are elements of the Indian economy but the Indian economy in a global context is relatively close and relative domestic driven. So unlike some of the smaller and more open economies in the region that are facing large headwinds because of their structure, India being larger and more domestic is in a fairly good space. So we would expect India to continue to outperform most of the rest of the region over the next couple of years.
“We do think there is some room on the monetary policy front, so we would see some monetary easing ahead but the heavy lifting is going to be done on the monetary front and we would expect the structural reforms to come through,” added Gruenwald.
On structural reforms, he said: “It is the effects of the goods and services tax and the bankruptcy reform, it is a pretty well-established fact that India will need it at some point. However, as we do our medium-term forecast, these things take time to work through the economy. So we have got some legs on the structural reform.”