India's growth in FY19 slowed down to its lowest level in the last five years. For the fourth quarter, growth came in below 6 percent, leading to a sharp fall in the 10-year bond yield to below 7 percent.
To discuss the macro concerns facing the new government, CNBC-TV18 spoke with Samiran Chakraborty, chief economist, Citi, from the sidelines of their India Investor Conference.
The high frequency indicators for April and May don’t indicate that we could see a sharp recovery in growth form the 5.8 percent number. However, there is hope that once this model code of conduct is over both the central and state governments will start spending the cash that they have built over the election period, which in turn could help some pick up in consumption demand and investments, said Chakraborty.
Moreover, the uncertainty that freezes-up consumption and investment before elections maybe that freeze may get over soon and if we start seeing the RBI (Reserve Bank of India) and the government take action to ease the liquidity issue of the NBFC sector then we could see things improving.
“In our forecast we have built in a very gradual recovery over the course of the year but for now it would be bit of struggle on growth front for sure,” he said. “For the next quarter numbers are close to 6 percent and for full year we are looking at 7 percent but there are downside risks because there are some issues still lingering in the system than initially thought to be. How the government addresses those issues will determine if we will see pickup in growth or not,” he added.
One will also have to be watchful of global developments because part of the slowdown is coming from there as well, so if there is some improvement in the global economy then that gives a bit of tailwind, said Chakraborty.
Talking about monetary policy, he said that apart from a June rate cut, they have opened up a possibility of an August rate cut if monsoon and Budget do not disappoint. However, one must keep in mind that the MPC members would be willing to see the lagged effect of rate cuts pass through the system. So to expect a series of rate cuts would be difficult, he said.