Moody's cuts India's GDP growth to 5.3% for 2020 over Covid-19 outbreak

Moody's Investors Service on Tuesday lowered India's GDP growth forecast for 2020 calendar year to 5.3 per cent, on coronavirus implications on the economy.

Moody's had in February projected a 5.4 per cent real GDP growth for India in 2020. This too was a downgrade from 6.6 per cent earlier forecast.

The 5.3 per cent real GDP growth forecast for 2020 compares to 5.3 per cent growth estimate for 2019 and 7.4 per cent achieved in 2018.

Stating that there was significant economic fallout from more rapid and wider spread of the coronavirus, the rating agency on Tuesday said dampening of domestic consumption demand in affected countries exacerbates disruptions to supply chains and cross-border trade of goods and services.

"The longer the disruptions last, the greater the risk of global recession becomes," it said.

Moody's forecast a 5.8 per cent growth rate for India in 2021.

"A number of governments and central banks have announced countervailing measures, including fiscal stimulus packages, policy rate cuts and regulatory forbearance; however, the effectiveness of policy easing will be blunted by measures to contain the outbreak, and policy space is constrained for some sovereigns," it said.

Also, tighter funding conditions and exchange rate depreciation could stress sovereigns with high foreign currency exposure, heavy reliance on external market funding or low foreign currency reserve coverage, it said.

Moody's said oil price shock adds to growth and fiscal pressures for exposed sovereigns. "A period of lower oil prices will further weigh on the economic and fiscal fundamentals of oil exporters, while mitigating the trade shock for importers.

Will Q3FY20 GDP numbers surprise on Friday? Here's what analysts expect

As the Central Statistics Office (CSO) gets ready to announce the gross domestic product (GDP) numbers for the third quarter ended December 2019 (Q3FY20) on Friday, most experts peg the number closer to 5 per cent. This is despite the slew of measures announced by the government over the past few months to help revive growth.

Analysts at Nomura, for instance, had expected the GDP growth to slow further to 4.3 per cent in Q4 2019 from 4.5 per cent in Q3, and predicted a below-trend growth of 5.7 per cent in FY21 from 4.7 per cent in FY20.

Meanwhile, the Reserve Bank of India (RBI) had projected the GDP growth forecast for the financial year 2020-21 (FY21) at 6 per cent and in the range of 5.5-6.0 per cent in the first half of the next fiscal and 6.2 per cent in Q3 (October-December period). GDP growth for FY 2019-20 is seen at 5.0 per cent, as per the central banks’ monetary policy review in February.

Here is how leading experts expect the growth to pan out in Q3FY20:

Barclays

After slowing for six consecutive quarters, we expect economic growth to have improved in Q4 2019. We see healthy crop production despite this year's excessive monsoon, a fading away of weather disruptions in mining and allied sectors, and some support from the corporate tax cuts as the key drivers of the growth revival. While private consumption remains subdued, government spending is providing support to the economy. The narrowing of the trade deficit is also a net positive at the margin. Overall, despite the output gap being negative, we expect economic growth to come in at 5 per cent for Q4 2019, slightly above the RBI’s estimate of 4.9 per cent.

Nomura

We expect GDP growth to remain lacklustre in the near term, forecasting it to dip further to 4.3 per cent y-o-y in Q4 vs 4.5 per cent in Q3 (Consensus: 4.7 per cent). In FY21, we expect GDP growth of 5.7 per cent y-o-y, below the RBI’s forecast of 6 per cent. A key downside risk in the near term, both on the supply and the demand side, is the adverse impact from the coronavirus (COVID-19) outbreak.

CARE Ratings

Despite the number of measures by the Government and the RBI, the leading indicators available till the quarter ended December, 2019 are not particularly robust and given the recent outbreak of coronavirus across some geography the impact could also be on some sectors in the country. We have projected GVA growth at 4.3 per cent and GDP growth of 4.5 per cent for Q3-FY20, which is lower than 6.6 per cent GDP growth recorded in the corresponding period a year ago.

Economic Research Department, State Bank of India

Our composite leading indicator (index of 33 major leading indicators) suggests that GDP growth will remain flat at 4.5 per cent as in Q3 of FY20. Our 33 high frequency leading indicators reveal an acceleration rate which was 65 per cent in Q1 FY19 has declined sharply to 22 per cent in Q3 FY20. We expect the gap between GVA and GDP to widen further in FY20 as the transfer of Government payments is witnessing a slowdown in Q4FY20.

Interestingly, with the FY19 GDP growth being revised downwards steeply to 6.1 per cent in FY19, it indicates that the growth slowdown was much more significantly entrenched and had started from April 17 onwards / FY18 after reaching a peak of 8.3 per cent in FY17 and only worsened in FY19 (post the ILF&S crisis). In FY20, it has reached its nadir with growth projected at 5 per cent by CSO (with a downward bias).

Slowdown has bottomed out; economy must be opened up for growth: Panagariya

India's slowdown has bottomed out and now its economy needs to be opened up if the country wants to realise the ambition of a 10 per cent growth rate, former NITI Aayog Vice Chairman Arvind Panagariya has said.

In his keynote address at a discussion on India's Union Budget 2020, he said in the next fiscal year, India's GDP growth is expected to be 6 per cent and then it will get back to 7-8 per cent which has been the case in the last 15-16 year period.

"On the slowdown, my own assessment is that we have bottomed out," Panagariya, a Professor of Economics at the Columbia University, said at the discussion organised by India's Consulate General here in partnership with the US-India Strategic Partnership Forum (USISPF) on Tuesday.

"In the second half of the current fiscal year, which would be ending on March 31, we should see some bit of recovery, not a big one but certainly the second half (of the fiscal year) should look better than the first half," he said.

Panagariya noted that since about 2003, India has been growing at an average rate of about 7 per cent and the first five years of the Modi government was characterised by 7.5 per cent growth on an average.

Emphasising that the Indian economy "can do a lot better no doubt", he said that in his assessment, the main factor which led to the slowdown has to do with the financial markets and that translated into weakening of the balance sheets of both the banks as well as the corporates.

"I think you could criticise the government here for being a little slow in beginning the process of cleaning up of the bank Non-Performing Assets (NPAs). The problem was known actually by 2013" but this particular problem of NPAs never gets solved very quickly," he said.

Sounding an optimistic note, he said as the clean up happens, "we should see the growth returning".

On the Budget, Panagariya welcomed positive steps taken by the government including on fiscal consolidation, fiscal deficit, corporate tax reduction, initiation of simplification for the personal income taxation as well as privatisation.

Pointing to a "negative" in the Budget, Panagariya said that one of the things that has been going on for the last 2-3 years is that India is turning more and more towards import substitution.

"Trade economists use a more aggressive term - protectionism. And I've been saying that this is something that should not only be stopped but has to be reversed.

"Unfortunately, this budget goes very far in the direction of raising duties and particularly disconcerting is the fact that a lot of the items on which the duties have been raised and that too quite a bit are all labour intensive products," he said.

These are the products in which India ought to be exporting and "we should not be afraid of foreign competition. We should take on the foreign competition head on in the global markets. If we are not doing that, something is very wrong," he said.

Panagariya said that if a country with a 500 million-people strong labour force cannot compete in the labour intensive products, it points to the fact that something is fundamentally wrong with the way some of the degradation in the system is.

"So one has to go to the root cause what is causing it and remove those obstacles, hurdles and not try to give them some advantage by putting in tariffs. That only is encouraging inefficiency and small plants," he said.

He also pointed out that one of India's big problems is that there is too much pre-occupation with small and micro and small enterprises.

"What India lacks big time, especially in these labour intensive sectors, are medium and large firms. But when you start raising these protections, you are only encouraging micro and small, you are not encouraging medium and large firms which ultimately are the most efficient firms, compete in the global marketplace and define the ecosystem in the domestic market.

"And this is where I unhappily come to the conclusion that unless we reverse that, the ambition of 10 per cent growth or double digit growth which is very much realisable for India, I think will not get realised," he said.

Panagariya said that India can still achieve the 8 per cent or so growth rate because of the other measures and reforms that are being undertaken.

"So we will get to 8 per cent but I think if we want to get to that extra 2 per cent to 10 per cent, then we need an economy which is open, competes in the global marketplace," he said.

Panagariya noted that he does not agree with the "noise" and "common perception" that the second term of the Modi government is ignoring the economy and is only focusing on social issues such as the abrogation of Article 370 and the Citizenship Amendment Act.

"This is not true," he said, adding that reforms have continued.

He highlighted the "major reforms" undertaken by the Modi government including the Insolvency and Bankruptcy Code, the Goods and Service Tax, Direct Benefit Transfer and the corporate profit tax.

GDP growth to stay flat at 4.5% in October-December, say SBI economists

The GDP growth will stay flat at 4.5 per cent in the October-December 2019, economists at SBI said on Wednesday, two days ahead of the release of official data.

They also said that India faces the risk of getting impacted by coronavirus epidemic economically because of its high reliance on Chinese imports for various goods.

The GDP growth is set to slip to a decadal low of 5 per cent in 2019-20, driven majorly by a fall in domestic consumption and sluggish world markets that have impacted Indian exports.

The downward spiral in growth momentum has resulted in a slew of initiatives from the policymaking side, including a cumulative rate cut of 1.35 percentage point by the Reserve Bank in 2019, and a sharp cut in direct taxes for corporates by the government.

The SBI economists revised up their FY2019-20 growth estimate to 4.7 per cent from the earlier estimate of 4.6 per cent because of the base effect triggered by a downward revision in the FY2018-19 growth number by the government.

The "steep" downward revision by the government for the FY2018-19 growth number indicates that the slowdown had set-in since April 2018 onward, the SBI economists said.

On the third quarter estimate, the economists said its composite leading indicator, which analyses inputs from 33 various indicators, suggests that the growth will be flat as the preceding quarter's 4.5 per cent growth.

Meanwhile, on the coronavirus scare, it said, "the economic impact is expected to accrue from supply chain risk which may link up with exports as in pharmaceutical sectors".

Direct exports of commodities like cotton, diamonds to Hong Kong, and import of auto parts and certain items critical to solar projects will be the areas of impact, it said.

They also noted that poultry sales have also seen some impact although the virus is not of avian origin.

Brokerages see global growth picking up next year, stay cautious on India

Even as growth rates pegged to be grinding lower in India in the next calendar year (2020, or CY20), global gross domestic product (GDP) rate is set to stabilise next year and start looking up from the second half of the year into 2021, leading brokerages have said.

However, for this to happen, they expect trade tensions to ease, jobs to grow and consumption in the US to remain robust and central bank stimulus to gain some traction.

As regards India, most economists remain cautious. Analysts at Nomura, for instance, expect growth to slow further in the fourth quarter (Q4) and peg the 2020 estimate at 5.5 per cent as against a consensus estimate of 6.3 per cent. On a financial year basis, they expect GDP growth of 4.7 per cent in FY20 and 5.7 per cent in FY21, suggesting a delayed recovery and below-potential growth through end-2020.

“Domestic credit conditions remain tight as market concerns in the shadow banking sector have persisted for too long, in our opinion. Hence, we believe India’s growth is set to slow further in Q4, delaying the recovery expected by consensus,” wrote Sonal Varma, managing director and chief India economist at Nomura in a co-authored Asia Outlook 2020 report with Aurodeep Nandi.

Brokerages see global growth picking up next year, stay cautious on IndiaThose at CARE Ratings, too, expect the pick-up to be gradual and spread out over the next two-three years, given that the problems are structural in nature. “While optically the number can be around 5.5 per cent to 6 per cent in 2020, a meaningful pick-up that can take the GDP around the 8 per cent mark is still a two–three years away,” says Madan Sabnavis, chief economist at CARE Ratings.

GDP slump signals significant slide in investment, consumer demand: Ficci

India's economic growth dropping to an over six-year low of 5 per cent in April-June 2019 is indicating a "significant deceleration" in both investment and consumer demand, industry body Ficci said on Saturday.

Expressing "deep" concerns over sluggishness in the growth momentum, Ficci President Sandip Somany said "the latest GDP growth numbers are below expectations and point towards a significant deceleration in both consumption and investment demand."

He, however, hoped that a series of measures being taken by the government and the central bank to reverse this slowing trajectory would help improve economic situation in the subsequent quarters, according to a Ficci statement.

"The mega bank consolidation plan, liberalisation of FDI guidelines and the stimulus package are comprehensive and address the key pain areas of the economy," he added.

With a mix of both broader measures and sector specific interventions, the Indian economy and the industry would come out of this weak patch soon, he said.

The PHD Chamber of Commerce and Industry said the recent economic reforms undertaken by the government and the RBI will create a strong and resilient economic environment in the country and rejuvenate GDP growth rate in the coming quarters.

PHDCCI President Rajeev Talwar said: "The big ticket economic reforms including recapitalisation of public sector banks, rollback of enhanced surcharge on foreign portfolio investors, payment of all pending GST refunds to MSMEs...are inspiring and would go a long way to foster strong, stable and inclusive growth environment in the country."

Going ahead, he said, further reforms in ease of doing business at the ground level especially for the small and medium sized businesses along with desired reforms in labour laws such as fixed term employment for flexibility in hiring by industry across the states would be crucial to strengthen the manufacturing sector.

India's economic growth has slumped for the fifth straight quarter to an over six-year low of 5 per cent in the three months ended June as consumer demand and private investment slowed amid deteriorating global environment.

Having lost the tag of the world's fastest-growing economy earlier this year, India's GDP growth was behind China's 6.2 per cent in April-June, its weakest pace in at least 27 years.