New Delhi: In yet another blow to the Indian economy after Moody’s downward outlook, two reports — compiled by the state-owned State Bank of India (SBI) and Singapore’s DBS Bank — on Tuesday expressed concern about the slowdown in growth in the Indian economy.
Showing a declining trend, the SBI research report sharply cut the country’s gross domestic product (GDP) growth forecast to 5 per cent for the financial year (FY) 2019-20, from its earlier projection of 6 per cent, while DBS Bank said that India’s July-September quarter GDP numbers could be crucial.
Terming the decline in September industrial output (IIP) growth by 4.3 per cent as ‘quite alarming’, the report from the Economic Research Department of the SBI said, “we expect Q2GDP growth at 4.2 per cent. Our acceleration rate for 33 leading indicators at 85 per cent in October 2018 is down to just 17 per cent in September 2019, with such a decline gaining traction from March 2019.”
“On account of low automobile sales, flattening of core sector growth, declining investment in construction as well as infrastructure and deceleration in air traffic movements, the second quarter GDP growth rate is likely to slip down to 4.2 per cent,” the SBI report forcasted.
The report further said, “we believe that Moody’s change in outlook from stable to negative will not have any significant impact as rating actions are always a laggard indicator and markets this time have categorically given a thumbs down to it.”
However, it added, the growth rate in 2019-20 should be looked through the prism of synchronised global slowdown.
Countries have witnessed 22 to 716 basis point decline between June 2018 and June 2019, and India cannot be isolated. “India is also significantly lower in Economic Uncertainty Index when compared globally,” the SBI report said.
Nevertheless, DBS Bank, in its daily report on Tuesday, said that India’s July-September quarter GDP numbers could be crucial for the country. “India’s July-September quarter GDP data, scheduled for a release on November 29, will be important as headline growth has already slipped to a six-year low to 5 per cent year-on-year in the quarter ending June,” it said.
“A disappointing GDP report could lift $/Rs above its two-month range between 70.5 and 71.5 and bring it closer to the year’s high at around 72.5,” the DBS report noted, adding that the Indian rupee depreciated to 71.47 from 71.29 on Monday.
Meanwhile, the SBI research report, however, remained hopeful that economic growth rate would pick up pace in 2020-21 to 6.2 per cent. “To propel economic growth, the RBI may go for larger rate cuts in its December monetary policy review,” it said.
Against growth slowdown, the SBI note, however, suggested, “It is imperative that India adheres to no negative policy surprises in sectors like telecom, power and NBFCs. For example, it is imperative that a lasting solution is worked out for the NBFC sector that has been much delayed now.”
Last month, while reducing the key policy or repo rate by 25 basis points for the fifth time in a row, RBI had also reduced its growth forecast to 6.1 per cent for 2019-20 from 6.9 per cent. “We are revising our GDP forecast for 2019-20 to 5 per cent from 6.1 per cent earlier,” the SBI report said.
“We expect larger rate cuts from the RBI in December policy. However, such rate cut is unlikely to lead to any immediate material revival, rather, it might result in potential financial instability as debt financed consumption against an increasing household leverage had not worked in countries and India cannot be an exception,” it added.