India’s real GDP growth in this fiscal to hover under 5 percent: IHS Markit

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. This compared with the 5 per cent growth rate registered in the previous quarter and 7 per cent rate recorded a year ago in September quarter of 2018.

For the first half of 2019-20 fiscal, GDP growth slowed to a pace of 4.8 per cent compared to the 7.5 per cent a year back.

“Financial sector fragilities continue to weigh on India’s economic growth momentum, with the high level of non-performing loans on the balance sheets of the public sector banks, constraining their new lending,” IHS said in a report.

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 on the overall pace of credit expansion.

In response to the growth slowdown, the Reserve Bank of India (RBI) has eased policy rates significantly during 2019, with a series of rate cuts since February, while the government announced a large reduction in corporate tax rates in September to help boost new investment spending.

“Following the weak GDP out-turn 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,” IHS said.

The RBI also lowered its GDP growth forecast for 2019-20 from 6.1 per cent to 5 per cent on December 5.

“Confronted with the sharp slowdown in economic growth momentum, the Centre 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,” it said.