India needs 6.3% labour productivity growth to clock 8% GDP: India Ratings

India Ratings and Research on Thursday said that the country will have to increase its labour productivity growth to 6.3 per cent to attain 8 per cent economic growth.

The labour productivity growth in FY19 was 5.2 per cent.

"India will have to raise its labour productivity growth to 6.3 per cent to achieve 8 per cent GDP growth. And to attain nine per cent growth, labour productivity growth will have to be raised to 7.3 per cent," India Ratings and Research (Ind-Ra) said in a statement. This is 40.4 per cent higher than the level attained in FY19, it said.

Given the growth slowdown, this looks unlikely in the near term, but is not an insurmountable task, according to Ind-Ra.

"Such levels of labour productivity growth have been achieved in the past...India's labour productivity growth, like other nations, came under pressure in the aftermath of the 2008 global financial crisis, especially during FY11-FY15," it said.

However, it recovered thereafter and grew at 5.8 per cent during FY16-FY19, it added.

The challenge on the productivity front for India is two-fold, it said. "First, how to raise the overall labour productivity to a level that delivers the required GDP growth rate, and secondly how to lift the labour productivity in the lagging sectors so that growth is more evenly balanced and sustainable over the medium- to long-term." Sectors such as manufacturing, electricity, gas, water supply, transport, storage and communications "contributed significantly to the overall labour productivity during FY00-FY16".

The sectors that lagged are construction, agriculture and mining.

Weak household consumption in India to curb economic growth: Moody's

Moody's Investors Service on Monday said that India's weak household consumption will curb economic growth and weigh on the credit quality of Indian issuers in a range of sectors.

Moody's has lowered its GDP growth projection for India for the fiscal year ending March 2020 to 4.9 per cent from 5.8 per cent.

The major factors responsible for weakening economic growth were rural financial stress, low job creation and liquidity constraints, said Moody's in a report.

"What was once an investment-led slowdown has now broadened into weakening consumption, driven by financial stress among rural households on the back of stagnating agricultural wage growth and constrained productivity, as well as weak job creation due to rigid land and labour laws," said Deborah Tan, a Moody's assistant vice president and analyst.

Household consumption has been the backbone of India's growth, making up about 57 per cent of GDP in FY2018-19. Like other major markets, India's growth has decelerated, with GDP growth falling to 4.5 per cent in Q3 2019 from 5.0 per cent in Q2 2019.

The report further noted that the credit crunch among non-bank financial institutions (NBFIs), the major providers of retail loans in recent years, has "exacerbated" this slowdown.

"While the income shock to households has been unfolding over several years, it was not visible on headline growth as long as households could borrow from NBFIs. With the materialization of a credit supply shock, we now see the impact of these twin shocks on growth," Tan added.

Moody's expects that government measures to stimulate domestic demand – including income support for farmers and low-income households, monetary policy easing and a broad corporate tax cut – will be limited in offsetting this slowdown.

"Although a modest recovery is expected for next year, supported partly by spillovers from policy stimulus, economic growth will be weaker than in recent years, which will have negative credit implications for Indian issuers in a range of sectors," it noted.

In automotive, weak demand and tight liquidity will constrain automakers' earnings. Moreover, slower economic growth over the last few quarters will also reduce debt servicing capabilities of households, which in turn will weaken the asset quality of retail loans across all segments.

Private-sector banks have a larger exposure to retail loans and may be more at risk, the report said adding that an increase in non-performing loans (NPLs) would be gradua

Govt taking steps on raising consumption to boost growth: CEA Subramanian

Chief Economic Advisor Krishnamurthy Subramanian on Friday said the government is focusing on increasing consumption to boost economic growth.

Presenting steps taken by the government in the past few months to pull the economy out from a six-year low growth, he said the measures include corporate tax cuts to improve risk-return of companies.

Also, capitalisation of public sector banks and giving last-mile funding to realty projects was announced.

As much as Rs 4.47 trillion has been sanctioned to non-banking financial institutions and housing finance companies to support retail lending, he said, adding that 17 proposals amounting to Rs 7,657 crore had been approved under partial credit guarantee scheme.

Also, 66 per cent of budgeted capex of Rs 3.38 trillion has already undertaken, he said.

Railway and road ministries will have undertaken capex of Rs 2.46 trillion by December 31, he said.

More than 8 lakh repo-linked loans amounting to Rs 70,000 crore have been sanctioned till November 27, he added.

Also, Rs 60,314 crore of capital has been infused into PSU banks. Lenders have disbursed Rs 2.2 trillion to corporates and

Rs 72,985 crore to MSMEs.

Moody's cuts India outlook to negative, predicts 'prolonged slower growth'

India’s credit ratings outlook was cut to negative by Moody’s Investors Service, the first step toward a downgrade, as concerns mount the economic slowdown will be prolonged and debt will rise.

Moody’s projects a budget deficit of 3.7% of gross domestic product in the year through March 2020, a breach of the government’s target of 3.3%, as slower growth and a surprise corporate-tax cut curbs revenue. The foreign currency rating was retained at Baa2, the second-lowest investment grade score.

India’s growth outlook has deteriorated sharply this year, with a crunch that started out in the shadow banking industry spreading to retail businesses, carmakers, home sales and heavy industries. Growth has come down to a six-year low of 5%, with Moody’s saying there’s a low chance of sustained growth at or above 8%.

“A prolonged period of slower economic growth would dampen income growth and the pace of improvements in living standards, and potentially constrain the policy options to drive sustained high investment growth over the medium-to long term,” William Foster, vice president of Moody’s Sovereign Risk Group, wrote in a statement.

The SGX Nifty 50 Index Futures declined 0.4% in Singapore as of 6:57 a.m. in Mumbai. The dollar-rupee one-month non-deliverable forwards rose after the Moody’s statement.

The downgrade puts additional pressure on authorities to kickstart the economy, although they have limited room to move. The Reserve Bank of India has already cut interest rates five times this year, though lenders aren’t passing on that easing to customers.

Moody’s said it doesn’t expect the credit crunch among non-bank financial institutions, which were the main source of consumer loans in recent years, to be resolved quickly.

Investors will closely watch the nation’s gross domestic product data for signs of further, long-lasting weakness, which could result in another negative shift, according to Moody’s. Stabilization in the non-bank financial sector, meantime, would be credit positive and could flag less risk of negative spillover into banks.

“There have been some concerns about fiscal slippage,” said Shamaila Khan, director of emerging-market debt at AllianceBernstein in New York.

“If the government is able to maintain discipline and mitigate spending by doing more privatizations that could help allay these concerns. There’s a reasonable probability that that could happen, and this is a negative outlook so it gives them some time to play this out.”

Fitch Ratings and S&P Global Ratings still hold India’s outlook at stable.

Economists predict deeper interest-rate cuts, slow economic growth

Economists have cut their forecasts for India’s economic growth and predicted deeper interest-rate cuts after data showed a sharper-than-expected slump in output.

Goldman Sachs Group and Citigroup lowered their growth projections to 6 per cent for the fiscal year, while Oxford Economics said there’s a risk the expansion could be weaker than that.

GDP rose 5 per cent in the June quarter from a year ago, the slowest pace in six years and lower than all the forecasts in a Bloomberg survey of economists. The weakness was broad-based, with consumption and export growth slowing.

According to the UBS India financial conditions index, the sluggish growth has dampened demand, capital expenditure and export outlook of firms, and the future recovery cycle will be “elongated and below market expectations”. It said growth may have reached a trough -- or a low turning point of a business cycle -- in the June quarter.