Indian Economic Scenario
On the back of weakness in the global economy and structural changes being undertaken in India, GDP growth has dipped to an 11 year low of 4.2% in FY 2019-20.
Weak performance by the manufacturing and construction sectors and slower credit growth and continued asset quality stress in the financial sector are largely responsible for the slowdown. Sluggish economic growth and tighter credit conditions in the non-banking sector have led to a substantial weakening of domestic demand. Despite this, India overtook the UK and France to become the fifth largest economy in the world. The implementation of the Government's policies which have a clear focus on improving the capacity to spend for the rural sector, on infrastructure creation and inviting foreign investments will help to improve the economy significantly
Some of the key reforms implemented by the Government including ease of doing business, implementation of a bankruptcy law, streamlining the tax structure and reducing tax rates as well as steadfast focus on infrastructure covering national highways, dedicated rail freight corridor and interlinking of rivers is expected to have a multiplier effect in the ensuing years.
Global rating agencies expect India’s economic growth to significantly soften to between 'zero' and 1.2% for FY 2020- 21 before rebounding sharply to 6.6%-6.7% in FY 2021-22. The recent slowdown and steps taken by the Government to shore up the economy are likely to result in further fiscal slippage. It is believed that the Central Government’s fiscal deficit will end up at negative 5.5% (-5.5%) of GDP for fiscal FY 2019-20, a breach of the fiscal deficit target of negative 3.3% (-3.3%).
Looking at FY 2020-21 , the initial momentum appears tapered owing to lockdown imposed by the Government to inhibit the spread of novel coronavirus (COVID-19). Before the lockdown, IMF and Moody's reduced the growth forecasts for India to 4.8% and 5.3% respectively, from 6.1% and 5.4% projected earlier. While this could be further reduced since the lockdown included full closure of all nonessential services, industries like manufacturing, transport, retail, leisure and recreation, which constitute a substantial component of India’s GDP will be halted for a while. For several decades, consumption has been the bedrock of India’s growth story. With it expected to be significantly impacted due to the pandemic, it will undoubtedly have a multiplier effect across the Indian Economy.