Q3 2019-20 GDP growth pegged at 4.7%
The current slowdown has been more prolonged than anticipated; however, it has almost bottomed out, say participating economists
The latest round of FICCI Economic Outlook Survey puts forward the annual median GDP growth forecast for 2019-20 at 5.0%. While the median growth forecast for agriculture and allied sectors has been kept at 2.6% for 2019-20; the industry and services sector are expected to grow by 3.5% and 7.2% respectively during the current year. Growth is likely to improve to 5.5% in 2020-21 as per the projections.
Besides, a median forecast of 4.7% for GDP growth has been pegged at for the third quarter of 2019-20. The growth numbers for the third quarter are expected to be released by the Central Statistical Organisation in February 2020.
The survey was conducted during the months of December 2019 and January 2020 amongst economists belonging to the industry, banking, and financial services sector.
Larger concerns remain on the external front with exports projected to contract in 2019-20. Merchandise exports are expected to decline by 2.1%, while imports are expected to decline by 5.5% during the year. Moreover, the median current account deficit forecast was pegged at 1.4% of GDP for 2019-20. Moderation in global growth forecast, escalating geopolitical complexities, and uncertainty around trade deal between US-China and BREXIT outcome still form major risk factors to India’s growth in 2020.
A majority of economists agreed that the current slowdown in India, although more prolonged than what was anticipated, has nearly bottomed out. They were of the view that the economy will follow a U-shaped recovery this time around which means that a sustained uptick in growth will take some time to shape up.
Participating economists cited various reasons, including a higher amount of projects sanctioned by financial institutions, greater deployment of funds in fixed assets by corporates, an increase in government capex spending and higher payouts to support rural income schemes, for their optimism about the rebound in India’s growth.
However, continued weak consumer sentiments, lack of trust amongst lenders, worsening of global trade wars and rising geopolitical tensions were cited as the major downside risks to growth.
Economists suggested a greater focus on addressing the demand side concerns along with the simplification of the taxation system to revive the economy.
In addition, participating economists said that a shortfall in government’s revenue collections seems imminent this year on the back of lower than anticipated nominal growth. To augment the government’s revenue collections, economists called for measures to boost the country’s nominal GDP growth.
Citing weak consumer demand as a major impediment to India’s growth, economists cautioned against any changes in the GST rates to improve revenue collections as it would prove to be counterproductive. Economists recommended undertaking expansionary fiscal and monetary policies along with a slew of reforms to tackle the structural problems facing the economy.
It was felt that more measures must also be taken to formalize the informal sector by mandating e-payments. Aggressive disinvestments and monetization of government assets (real estate, telecom spectrum) was the need of the hour to alleviate stress on fiscal balances. In addition, the government must also consider rationalizing subsidies to reduce leakages and prevent wasteful expenditure
On the expectations from the Union Budget 2020-21, a majority of the participating economists agreed that the fiscal deficit target be relaxed as supporting economic growth was increasingly becoming more important. Most of the participants felt that this stimulus must be directed towards boosting the rural economy where the propensity to spend was higher than their urban counterparts. Larger allocations to schemes such as MGNREGA, PM-KISAN, and direct income transfers must be undertaken to alleviate the prolonged distress in the rural sector.
Additionally, participants called for a broad-based plan to support the financial sector with a focus on NBFCs. Additional bank recapitalization, hiking FDI limit in public sector banks (from 20% to 49%) and reinstating specialized financial institutions to fund long term projects.
On the external front, measures to enhance manufacturing and export competitiveness must be announced on priority. Concerns must be addressed on the factor markets side on a priority basis as this will further improve the ease as well as the cost of doing business in the country. In addition, the government must engage in bilateral trade agreements with key trading economies where we have complementarities and work towards healthier and sustainable trade balance. Issues related to inverted duty structures for all sectors must also be quickly resolved.
Economists felt that focusing on the efficiency of government expenditure was of paramount importance as well. It was therefore suggested that schemes and projects which have attracted allocation over the years without much utilization be reviewed periodically to ensure necessary action.
Furthermore, some participants felt the need for enhanced tax benefits and incentives for home buyers which could provide the much-needed boost to the real estate sector.