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Home Economy

Economic growth deteriorates is fast, says Dr Sinha

Fiinews by Fiinews
January 8, 2020
in Economy, Exports, Industry Sectors, Investment
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Services sector has slowed

 

The economic landscape has deteriorated so fast lately that FY20 is turning out to be a year of rapid downward growth revision, noted Dr. Sunil Kumar Sinha, Director – Public Finance & Principal Economist at India Ratings & Research (Fitch Group).

The fourth revision of India Ratings and Research (Ind-Ra) had pegged FY20 GDP growth at 5.6%.

The first advance estimate of the National Statistical Office’s (NSO) pegs it at 5%, which is lowest since FY09.

“All along the high frequency data had been hinting at the slowdown, but the severity of economic slowdown has caught all by surprise,” said Dr Sinha.

Even the bellwether of Indian economy, the services sector, has slowed down considerably to 6.9% in FY20 from 7.5% and 8.1% in FY19 and FY18 respectively.

Here again excluding the government expenditure (which is captured under the head of public administration, defence and other services), the services sector growth declined to 6.1% (FY19: 7.2%).

However, the biggest fall in growth has been recorded by two employment intensive sectors namely construction and manufacturing, he pointed out.

While construction sector growth slipped to six year low at 3.2% in FY20 (FY19: 8.7%), manufacturing growth dipped to 2.0% which is a 15 year low (FY19: 6.9%).

The demand side also suggest that with the exception of government expenditure all other demand drivers namely private consumption, investment and net exports are down and out, he said.

The growth slowdown especially in private consumption to 5.8% in FY20 from 8.1% in FY19 has taken the sting out of FY20 GDP growth because this alone constitutes the 57.4% of the total GDP.

Ind-Ra believes even advance estimate of 5% GDP growth is not sacrosanct.

There are risks. In this estimate, it has been assumed that private consumption, government expenditure and investment will grow at 7.3%, 8.5% and (-)0.5%, respectively, in 2HFY20 (1HFY20: 4.1%, 12.3% and 2.5%).

Among these the assumption relating to private consumption looks somewhat unrealistic if festival demand is taken as an indicator.

Even nominal GDP growth estimated at 7.5% for FY20 will have significant implication for the economy.

Most important of this relate to fiscal deficit. A lower denominator will magnify the fiscal deficit as a percentage of GDP.

If nominal GDP declines, further leading to the borrowing cost turning out to be higher than nominal GDP, then it will pose debt servicing challenge, said Dr Sinha. fiinews.com

Tags: India Ratings and ResearchRBI
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