Context:
India Ratings & Research (Ind-Ra) lowered its projections on India’s GDP (Gross Domestic Product) growth rate by 60 basis points. The agency said the GDP growth rate could slip to 6.7 percent during the current fiscal year (FY20). This is 60 basis points (100 basis points mean one percentage point) lower than the earlier estimate of 7.3 percent and 10 basis points lower than 6.8 percent registered in 2018-19
Background: Ind-Ra is a 100% owned subsidiary of the Fitch Group. India Ratings and Research (Ind-Ra) is a credit rating agency providing India's credit markets accurate, timely and prospective credit opinions.
The agency expects FY20 to be the third consecutive year of subdued growth. It has listed five key reasons for this:
- a slowdown in consumer demand,
- delayed and uneven progress of the monsoon so far,
- decline in manufacturing growth,
- inability of Insolvency and Bankruptcy Code to resolve cases in a time-bound manner and
- rising global trade tensions adversely impacting exports.
Other observations of the agency:
- Even with a thumping majority, this Government has not been able to generate hope. Once pessimism sets it, consumption pattern gets affected.
- The agency did take note of the measures announced by the Finance Minister Nirmala Sitharaman last week but felt “bandage kind of approach will not work.
- Private consumption, which has been the mainstay of aggregate demand, has in fact come under pressure in urban as well as rural areas lately. While the reduced income growth of households has taken the steam out of the urban consumption, drought/near-drought conditions in three of the past five years, coupled with the collapse of food prices, has taken a heavy toll on rural consumption.
