India’s GDP growth could be below 6 per cent for next two years: SBI’s research report – The Hindu BusinessLine

State Bank of India’s economic research department has cut its projection for gross domestic product (GDP) for FY20 to 4.6 per cent, based on current available trends, against 5 per cent projected earlier, even as it assessed that India could be now staring at a sub-6-per-cent growth for two successive years.

The FY20 GDP estimate, as released by the Central Statistical Organisation (CSO), has pegged the GDP growth rate at 5 per cent, an 11-year low.

Also read: At 5%, GDP growth to hit 11-year low in FY20

“Nominal GDP growth at 7.5 per cent is a 42-year low. For FY20, the budgeted nominal GDP growth rate was 12 per cent which has now been revised downwards to 7.5 per cent. Based on this GDP revision, the impact on fiscal deficit is around 12 basis points for FY20,” said Soumya Kanti Ghosh, Group Chief Economic Adviser, SBI, in the bank’s research report ‘Ecowrap’.

“We now believe that the RBI projection of a 5.9-6.3 per cent GDP for FY21 could be on the higher side. We could be now staring at a sub-6-per-cent growth for two successive years,” the report said.

SBI’s research team said agriculture and allied activities are likely to grow at 2.8 per cent in FY20, against the previous year growth of 2.9 per cent.

The First Advance Estimates of production of all Kharif crops for 2019-20 released by the Department of Agriculture, Cooperation and Farmers Welfare shows that there will be a marginal decline in overall production to 140.57 million tonnes from 141.59 million tonnes in 2018-19.

As per Ecowrap, industry is estimated to grow at 2.5 per cent in FY20, compared to 6.9 per cent in FY19, due to lacklustre performance in all the sub-sectors. Deceleration in manufacturing (from 6.9 per cent in FY19 to 2.0 per cent in FY20) and construction (from 8.7 per cent in FY19 to 3.2 per cent in FY20) are the main reasons for such low growth in industry.

The report said service sector growth is likely to come in at 6.9 per cent in FY20, compared to 7.5 per cent in FY19. The sub-segment ‘Financial, Real Estate & Professional Services’ growth declined significantly to 6.4 per cent in FY20, compared to 7.4 per cent growth in FY19.

In this sector, around 75 per cent is contributed by the growth in real estate and professional services. The Public Administration sub-segment is likely to increase by 9.1 per cent, compared to last year’s growth of 8.6 per cent.

While emphasising that the key to a quick recovery is consumption, the report said the CSO estimates reveal an impending consumption recovery but its authors believe the quadruple balance sheet problem (banks, corporates, non-banking financial companies and households) is creating space for deleveraging that will delay a consumption pick-up and also an investment pick-up. The current uptick in oil prices could create a slowdown in discretionary consumption too, it added.

“Specifically, the Insolvency and Bankruptcy Code (IBC) resolution has been prolonged and we understand as companies are admitted into liquidation, the employees on the rolls of the company are only cumulatively compensated till the resolution process is completed, while the contractual employees are downsized.

“This also results in reduced remittance flows as contractual employees could head back to their place of origin. This could also act as a constraining factor on consumption growth, and thus, it is essential that we also find a quick resolution (average resolution time is of 324 days as on March 2019),” the report said.

via India’s GDP growth could be below 6 per cent for next two years: SBI’s research report – The Hindu BusinessLine

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s