GDP Growth Could Accelerate to 7.3% in FY20
24, Jan 2019
Prelims level : Economy Mains level : Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment
- GDP growth is expected to quicken to 7.2% in 2018-19 and further to 7.3% in 2019-20, according to Crisil.
- The agency predicts retail inflation to rise substantially by then, to 4.5% in 2019-20.
- “Fiscal 2019 was a year of recovery from demonetisation and the initial disruption caused by the Goods and Service Tax implementation,”
- The economy has so far fired mainly on the public investment cylinder, and is estimated to grow at 7.2%. Private consumption has disappointed. Exports, however, have performed well, presenting a buoy to the manufacturing sector.”
- In financial year 2019-20, Crisil expects GDP growth to quicken marginally to 7.3% based on the assumptions of normal rains, lower oil prices, and a stable political outcome in the 2019 general elections. “With the government likely to stick to a fiscal consolidation path, the pick-up in growth is expected to be only gradual
- The past 15 years have seen two such periods of four consecutive normal rainfall years — 2005 to 2008 and 2010 to 2013 — that yielded healthy average agriculture growth of 3.6% and 5.5%, respectively.
- Private consumption growth is expected to pick up on the back of softer interest rates and an improvement in farm realisations as food inflation moves up. “For fiscal 2020, sustaining the momentum in overall investments will be a tough task without support from private investments,” the report said.
- With continuously improving capacity utilisation and the end of the de-leveraging phase for corporates, conditions are ripe for a revival of private corporate investments. A stable political outcome will facilitate this,” the report said.
- However, Crisil noted that the National Oceanic Atmospheric Administration of the United States (U.S.) is forecasting an El Niño event in 2019. India faced two consecutive El Niño events in 2014 and 2015, the report said, with agriculture GDP growth dropping to near zero. If 2019 is also an El Niño year, this would compound the rural distress currently being felt on account of dropping farmer incomes.
- Crisil said its base case scenario for oil prices was for them to settle at about $60-65 per barrel on an average in financial year 2019-20, compared with an average of $68-72 per barrel in 2018-19, due to a slowdown in overall global demand.
- However, it added that some price pressure could be felt in response to the recently-announced supply-cuts by the OPEC countries.
- The agency also pointed to a possible reversal of benign food inflation in 2019-20, in the eventuality of the monsoon failing and the related effect this would have on food prices. It also noted that the price of pulses could also move upwards as they follow a pattern of rising every third year.