HYDERABAD: India’s GDP is likely to grow at 5 per cent in FY20 as the economy is on a ‘slow climb to recovery’, said DBS Banking, projecting a modest 5.8 per cent growth even in FY21.Stating that much of the ongoing growth deceleration was due to stress in the financial sector, DBS has revised down FY20 forecast from 5.5 per cent.
Weak growth has impacted revenue growth, compounding worries over an already weaker run-rate for tax revenues, it noted. “This slowdown is driven by an interplay of factors. This is part cyclical and part structural, which points to the likelihood of a slow climb to recovery in 2020,” it said in its report titled ‘India annual outlook 2020’.
According to the report, while demand-supportive measures expected in February’s Budget should help growth in the short-term, resumption of government spending coupled by inventory restocking is expected to help production.“We remain hopeful of three-pronged support -- monetary, fiscal and macro policies,” it said, adding that smooth implementation should be the focus including simplifying GST, strengthening the banking and non-banking sectors and tightening the bankruptcy law.
GDP grew at a six-year low of 4.5 per cent during the September quarter, down from 5 per cent in June. “Our GDP Nowcast model suggests growth ended in 2019 on a sombre note. With more high-frequency indicators surprising on the downside, we dial down our FY20 real GDP growth to 5 per cent year-on-year (previously 5.5 per cent), with the likelihood of two-quarters of sub-5 per cent growth and inching up past 5 per cent in first half 2020,” it said.
As for the monetary policy, DBS expects the Reserve Bank of India to further lower rates by another 50 bps by March 2020, though it suspects that room to cut rates has become limited in FY21.
Near-term priority would be to shore up growth, initially by boosting demand by fiscal means and thereafter by addressing structural constraints, DBS explained adding that favourable base effects, easier monetary conditions could support demand.