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Fitch cuts India's growth forecast to 4.9% for FY20

Mar '20
Pic: Shutterstock
Pic: Shutterstock
Fitch Solutions yesterday announced lowering its gross domestic product (GDP) growth forecast for India for fiscal 2019-2020 to 4.9 per cent from 5.1 per cent earlier, citing weak domestic demand and supply chain disruptions due to the coronavirus outbreak. It expects GDP growth to hit 5.4 per cent in the next fiscal against a 5.9 per cent projection earlier.

The global rating agency, in its outlook for India, warned that the country’s export manufacturing sector may be affected by disruption in the automotive and electronics supply chain from the ongoing COVID-19 outbreak in China, according to a news agency report.

The manufacturing sector, which constitutes 14 per cent of GDP growth, remained weak over the near term. The contraction in manufacturing eased slightly to 0.2 per cent in the third quarter, from 0.4 per cent in the second.

The development comes days after India's real GDP growth decelerated to 4.7 per cent in the third quarter ended December 31, 2019, due to weak consumption, a contraction in gross fixed capital formation and a smaller net exports contribution. While the gross fixed capital growth fell by 4.5 per cent, the government consumption growth slipped to 11.8 per cent from 13.2 per cent in the second quarter.

The government has also revised the GDP figures for first and second quarters of this fiscal to 5.6 and 5.1, respectively. It expects GDP growth during fiscal 2019-20 to be 5 per cent.

"A failure of the FY21 Union Budget to provide support to the industry will also bring little reprieve for a sluggish industry already coming under heavy pressure from a credit squeeze following the collapse of several key Non-Bank Financial Companies (NBFCs)," it said.

Fitch expects a slight pick-up in growth in the next fiscal, assuming that the virus spread would come down from June, which may lead to a broad-based improvement in economic activity.

"We expect manufacturing activity to come under further pressure from weak domestic demand and also supply chain disruptions due to the Covid-19 outbreak, which started in China. Weak manufacturing activity would also have a knock-on impact on slowing services growth," it said.

The agency expects manufacturing and services to pick up in the next fiscal.

Fibre2Fashion News Desk (DS)

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