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India’s growth outlook has dimmed

Growth with downside risks


Growth with downside risks


India’s outlook is under scrutiny as world looks for growth, says Singapore banking group DBS. Tailwinds might help stabilise growth in second half of the year, along with favourable base effects, it added.

Since 4Q18, the narrative has been dominated by downside risks to growth facing the G3 economies (ex-US), and China. Of late, sentiment indicators are showing signs of stabilisation at weak levels, but hard data is yet to reflect a decisive turnaround.

The International Monetary Fund, Asian Development Bank and, at home, the Reserve Bank of India have all trimmed their growth projections for India for FY19 and FY20. These revisions leave growth in the 7.2-7.5% range. “Our in-house GDP Nowcast model also points to softening in momentum into FY20,” said DBS Group Research in a report on 17 April 2019.

Monetary aggregates highlight underlying concerns over growth. On annual basis, broad money i.e. M3 growth has trailed nominal GDP growth, pointing to tightness in monetary conditions.

Theoretically, if money supply growth is slower than nominal GDP, there is room to loosen policy levers without worrying overtly over inflation or asset prices.

In the current cycle, credit growth has picked up, but the concurrent elevated loan-to-deposit rate reflects lack of money creation.

“This in turn, has added to the rigidity in deposit rates, and hurting the appetite for banks to lower lending rates,” said the report.

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