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India's real GDP growth in FY20 to be below 5%: IHS Markit

09
Dec '19
Pic: Shutterstock
Pic: Shutterstock
India's real gross domestic product (GDP) growth in 2019-20 is likely to be a bit lower than 5 per cent as stimulus measures will take time to show results, IHS Markit said. Financial sector fragilities continue to weigh in on growth momentum, with high level of non-performing loans on the balance sheets of public sector banks, constraining new lending, it said.

Furthermore, there are also risks from potential contagion effects from troubled non-bank financial companies (NBFCs) to the balance sheets of some commercial banks, which could further weigh in on the overall pace of credit expansion, IHS Market said in a recent report.

"Following the weak GDP outturn for the September quarter, Indian real GDP growth in FY 2019-20 is expected to be slightly below 5 per cent, as it is anticipated that the impact of stimulus measures will take time to filter through to the real economy," a news agency reported citing the IHS document.

Latest GDP data for July-September quarter showed a significant further moderation in the pace of economic growth to 4.5 per cent, the weakest in six years with a key contributory factor being a slump in manufacturing output.

"Confronted with the sharp slowdown in economic growth momentum, the Indian government will face increasing pressure to roll out additional fiscal measures to bolster manufacturing output and kick-start an upturn in the investment cycle. Such measures could include accelerated government spending on infrastructure projects such as roads, railways, and ports, as well as urban infrastructure such as affordable housing and hospitals," it said.

IHS said given that the process of strengthening bank balance sheets has been slow, taking a number of years already, India's financial sector problems are likely to remain a drag on the pace of economic growth over the medium-term outlook.

"Furthermore, any turnaround in the investment cycle could also be relatively protracted, depending on the ability of the government to accelerate its own infrastructure spending program," it said.

A key concern is also the sharp contraction in capital goods output, which was down 20.7 per cent in September 2019.

"This indicates that India's investment cycle is experiencing a severe cyclical slowdown, as reflected in the further slowing of fixed investment growth during the September quarter," it said. "The construction sector growth also slowed to a pace of 3.3 per cent in the September quarter, compared with growth of 5.7 per cent in the June quarter," it added.

Fibre2Fashion News Desk (DS)


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