Though the general elections have slowed down economic activity as the industry awaits a new government to take shape at the Centre, the economic growth is likely to be more than 7% in 2019-20, chief economic advisor Krishnamurthy Subramanian said on Friday. He attributed the slowdown over the last two quarters to structural factors as well as “something that is a hangover of what has happened earlier”.
“This is an election season, and historically, we have always seen there is some uncertainty around the election developments and therefore, there is a wait and watch mode that corporate and other agents in the economy adopt….this would be something that we hope would go away once the election process is over,” Subramanian said.
Speaking to CNBC TV18, Subramanian said the Centre would stick to the 3.4% (of GDP) fiscal deficit target for 2018-19 (for which data will be released next month) and 2019-20.
On difficulties being faced by more non-banking finance companies (NBFCs), he said the government is aware of the matter and would initiate steps at the right time. Besides the automobile sector, the slowdown faced by fast moving consumer goods (FMCG) players have also created some concerns in the market.
Capacity utilisation has still not reached an average of about 75%. “So, the demand for investments from corporate is still to pick up and we also had corporates and the banks leveraged significantly, which they are trying to wind down,” Subramanian said. So, this is a process because of which the capital formation in the economy had come down and effects of which “we are now seeing”, he said.
With manufacturing, agriculture and small services faltering and government spending slowing, the GDP grew at a five-quarter-low rate of 6.6% in the September-December period (Q3) of 2018-19. The Central Statistics Office (CSO) has revised downward the 2018-19 growth projection to 7% — a five-year trough — from 7.2% in the first advance estimate released in January.
With the fall in growth rates, given a loss of momentum since Q2, including in the high-frequency data available for post-Q3 period, economists predicted the growth to be more anaemic in Q4 at 6.1-6.4%, with a recovery to be expected in Q1FY20 or thereafter.
On tax collection targets, Subramanian said the government would put emphasis on indirect tax collections and some other steps that are being planned. “Those would help in bringing back buoyancy, increasing the buoyancy on indirect tax collections,” he said.
On concerns with regard to NBFCs, the CEA said, “The NBFC situation is better than what it was at the time when the IL&FS crisis had happened; it has been contained.” He said the government was aware of rating downgrade of some NBFCs and was seized of this matter. “There are some NBFCs which are facing some difficulties, which is something we are monitoring very carefully and we will take steps as and when required,” he said.
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