India’s gross domestic product (GDP) is expected to grow at 5.5 per cent year on year (YoY) in fiscal 2020-21, but downside risks persist, according to India Ratings and Research (Ind-Ra), which recently said this is only a marginal improvement over the GDP growth of 5 per cent estimated by National Statistical Office for 2019-20. Several factors have contributed to the slowdown.
The prominent factors are an abrupt and significant fall in lending by non-banking financial companies close on the heels of a slowdown in bank lending, reduced income growth of households coupled with a fall in savings and higher leverage and inability of the dispute resolution and judicial systems to quickly unlock the stuck capital.India's gross domestic product is expected to grow at 5.5 per cent year on year in fiscal 2020-21, but downside risks persist, according to India Ratings and Research, which said this is only a marginal improvement over the GDP growth of 5 per cent estimated by National Statistical Office for 2019-20. Several factors have contributed to the slowdown.#
Although some improvement in 2020-21 is expected, these risks are going to persist.
As a result, the Indian economy is stuck in a phase of low consumption as well as low investment demand. The organisation believes a strong policy push coupled with some heavy lifting by the government is required to revive the domestic demand cycle and catapult the economy back into a high growth phase, , Ind-Ra said in a press release.
The government’s recent measures to prop-up the economy will come to aid only in the medium term, Ind-Ra believes.
In the forthcoming union budget, Ind-Ra expects the shortfall in the tax plus non-tax revenue to result in the fiscal deficit slipping to 3.6 per cent of GDP (budgeted 3.3 per cent) in 2019-20, even after accounting for the surplus transferred by the Reserve bank of India.
A continuance of low GDP growth even in FY21 means subdued tax revenue and limited room for stepping-up expenditure. Ind-Ra believes the government will have to construct the FY21 budget in a way that expenditure is rationalised and prioritised and all avenues of revenue generation are tapped.
Fibre2Fashion News Desk (DS)