Domestic and global headwinds to drag FY20 GDP growth to six-year low: Ind-Ra

New Delhi [India], Aug 28 (ANI): India Ratings and Research (Ind-Ra) on Wednesday revised India's gross domestic product (GDP) growth in current financial year downwards to 6.7 per cent -- marking a six-year low -- from its earlier forecast of 7.3 per cent.
The agency expects FY20 to be the third consecutive year of subdued growth pushed by a slowdown in consumption demand, delayed and uneven progress of monsoon so far, decline in manufacturing growth, inability of Insolvency and Bankruptcy Code to resolve cases in a time-bound manner and rising global trade tension adversely impacting exports.
Even on a quarterly basis, Q1 FY20 is expected to be the fifth consecutive quarter of declining GDP growth as Ind-Ra expects it to come in at 5.7 per cent.
On August 23, Finance Minister Nirmala Sitaraman announced a slew of measures to revive the economy, which included addressing some of the woes facing auto sector, MSME, banking sector and capital market.
"However, these measures are likely to support growth only in the medium term. The agency expects GDP growth to recover to 7.4 per cent in H2 FY20 mainly on account of the base effect," said Ind-Ra.
Private consumption, which has been the mainstay of aggregate demand, has in fact come under pressure in urban as well as rural areas lately. While the reduced income growth of households has taken the sting out of the urban consumption, drought or near-drought conditions in three of the past five years coupled with collapse of food prices has taken a heavy toll on rural consumption.
Even investment, particularly private corporate investment, has remained sluggish over the past few years. However, average investment growth, largely constituting government and corporate sector maintenance capex, at 9.2 per cent during FY17-FY19 looks healthy vis-a-vis the average investment growth of 3.6 per cent during FY14-FY16.
Since the major contributors to the economy's investment pie are households and private corporations, their spending hold the key for reviving broad-based investment activity in the economy. While households' major investment is in real estate, that of private corporations is in machinery and equipment.
Given the stress in the real estate sector and manufacturing sector capacity utilisation hovering in 70 to 76 per cent range since FY14, Ind-Ra believes revival of private investment demand will be a long drawn process.
(ANI)