India's GDP expected to grow at 5.5% YoY in FY21: IndRa

25 Jan '20

2 min read

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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.

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)

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