After the International Monetary Fund (IMF), another rating agency has reduced the GDP growth estimate of the Indian economy. India Ratings and Research has projected a 5.5 percent increase in India's gross domestic product (GDP) in the next financial year i.e., 2020-21.
Prior to this, the IMF has projected a growth of 4.8 percent in India's GDP and 5 percent by the Government of India's National Statistics Office (CSO) in this fiscal year 2019-20. That is, according to India ratings, it will increase marginally next year as well.
It is worth noting that earlier in November last year, this rating agency of Fitch Group had estimated India's GDP to grow by 5.6 percent in this financial year i.e. 2019-20. The agency says that earlier it believed that there would be some improvement in the next financial year, but the Indian economy seems to be stuck in a period of low consumption and low investment demand.
Economist Sunil Sinha of India Ratings and Research said, "We expected some improvement in FY 2021, but there is a risk that the Indian economy seems to be stuck in a cycle of low consumption and weak demand."
Sinha said, "Strong policy needs to be emphasized by the government to rekindle the domestic demand cycle and return the economy to a period of high growth. But global trends are under pressure, exports have been affected all over the world, this has also affected India's exports. All these reasons are also responsible for bringing down the Indian GDP.
The rupee can fall further in the kind of economic conditions around the world. The agency highlighted in its research that the government announced several steps to lift the economy, but they will also help in the medium term.
Now that the eyes are on the upcoming budget, the rating agency has estimated that the fiscal deficit could come down to 3.6% (3.3% in the budget) in FY2020 due to the fall in tax and non-tax revenue. This situation is when the Reserve Bank of India (RBI) has transferred the surplus.
The government's tax revenue collection is decreasing year after year, due to this, the government has little scope to increase the expenditure.
Sinha mentioned the risks that the country may have to face in the coming months.
Risk Number 1- Inflation
Inflation of food items can again raise the head. This will cut down on people's savings.
Risk number 2 – NPA rising in banking sector
At a time when the banking sector is facing the challenges of non-performing assets (NPAs) or bad loans with significant organizational changes, the economy will have to go through a difficult phase in the coming year.
Risk Number 3- Tota of Private Corporate Investment
Only the government should fix the economy, this idea will no longer be enough for India. At this time the need is to start investment from private corporates so that the economy can be pushed. The government should ensure with its policies that corporates start investing as soon as possible.
