UBS expects slow growth in India in 2018-19 2nd half

16 Sep '18

2 min read

Pressure on India, the only major emerging market with a negative balance of payments (BoP), is likely to sustain, according to Swiss brokerage firm UBS, which recently said the Indian rupee would depreciate to 73 by March 2019. A country's external balances is a key factor influencing currency and its weakness has led to a 12 per cent rupee depreciation, it said.

Low goods and services tax (GST) collection and divestments along with strained state finances will take the consolidated fiscal deficit to 6.5 per cent this fiscal against the government's budget estimate of 5.9 per cent, a news agency reported citing UBS.

The firm revised its current account deficit (CAD) forecast for this fiscal to 2.7 per cent of gross domestic product (GDP) from 2.5 per cent, which would put India's overall BoP in a deficit of around 1 per cent of GDP, the first in seven years.

Expecting pressures on the BoP to continue till fiscal 2019-20, UBS revised its year-end rupee level estimate to 73 against the dollar, compared with the earlier 66.

As global uncertainties escalate, emerging economies like India that are running twin deficits are likely to face heightened financial market volatility as well as downside risks to their potential growth outlook, the company explained.

It said after the strong start in the first quarter, economic growth will slow down to 7-7.3 per cent in the second half of the fiscal. It estimated the full year economic growth to come in at 7.5 per cent, up from 6.7 per cent in the year-ago period. Inflation will be at ‘manageable’ levels though.

It expects India to miss its consolidated fiscal deficit for fiscal year 2018-19 on difficulties on GST collection, divestments, as also stretched state government finances.

The Indian government has committed to reduce its fiscal deficit to 3.3 per cent.

The brokerage said it expects a shortfall of up to ₹30,000 crore in goods and services tax collections for the current fiscal, unless there is a significant increase in tax compliance or the GST Council agrees with the recently passed amendments related to unallocated compensation cess to be shared between the central government and the states. (DS)

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