India Ratings projects country's FY21 GDP growth at 5.5%

Following the International Monetary Fund's (IMF) downward revision of India's growth forecast, another ratings agency India Ratings and Research (Fitch Group) has placed India's GDP growth rate in 5% bracket.

Putting forward a cautious figure, the ratings agency has pegged the Indian economy to grow at a 5.5% rate in FY21 (2020-21), which is marginally higher than the 5% GDP growth rate estimate for FY20 (2019-20).

Announcing the projected numbers, Sunil Sinha, Economist at India Ratings and Research said, "Although we expect some improvement in the financial year 2020-21, the risks will persist and will lead to the Indian economy being stuck in a phase of low consumption and low investment demand."

Also Read: IMF lowers India's 2019 growth forecast to 4.8% from 6.1%

On January 20, the IMF had lowered India's growth estimate for 2019 to 4.8 per cent from 6.1 per cent it had projected in October on the back of a sharp decline in consumer demand, stress in the NBFC sector and sluggish credit growth. It also expects growth to be 5.8 per cent in 2020 and rise to 6.5 per cent in 2021.

In its World Economic Outlook update released on January 20, IMF expected growth to pick up over the course of the next two years with the help of monetary and fiscal stimulus as well as subdued oil prices.

Meanwhile, talking about the estimates, Sinha said, "A strong policy push by the government is required to revive the domestic demand cycle and catapult the economy back into a high growth phase. But with global trade under stress, exports have been hit across the world, dampening impact on India's exports. This too is playing its role in bringing India's GDP down."

The ratings agency also assessed that the rupee too will witness further devaluation on the back of prevailing economic conditions across the world.

Also Read: India's GDP to shrink further in Q3; FY20 growth to be around 4.5%: Motilal Oswal

India Ratings and Research also highlighted in its estimates that although the government announced several measures recently to boost demand and revive the economy, these steps will help only in the medium term.

With the Union Budget coming up, the ratings agency added that it expects the fiscal deficit sliding to 3.6% of GDP (budgeted 3.3%) FY 21 on account of slippage in tax plus non-tax revenue, even after accounting for the surplus transferred by the Reserve Bank of India (RBI).

"With government's tax revenue collections dipping year on year, it leaves the government with little room for stepping-up expenditure," the agency said.

Talking about the current state of the Indian economy, Sinha stated that India is faced with three major risks in the months ahead:

Inflation: After lying low, food inflation has re-emerged and is eating into savings of individuals.

NPA rising in the banking sector: With the banking sector grappling with major structural and NPA challenges, the coming year too will witness the economy wading through difficult times.

Private corporate investment missing: The idea of government alone fixing the economy will not be sufficient for India. The need of the hour is for the private corporates to invest to kick-start the economy. The government through its policies needs to make sure that corporates start investing at the earliest.