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Citing more broad-based slump, Crisil cuts FY20 GDP forecast to 6.3%

  • The expected growth is based on the assumption of a pick-up from the second quarter due to low base effect, says the rating agency
  • The downward review comes days after GDP growth slowed down to a 25-quarter low of 5 percent in the June quarter

Mumbai: Describing the slowdown as "deeper and more broad-based than suspected", domestic rating agency Crisil Wednesday sharply slashed its GDP forecast for FY20 to 6.3 percent from 6.9 percent earlier.

The downward review comes days after GDP growth slowed down to a 25-quarter low of 5 percent in the June quarter which significantly is even lower than Pakistan's 5.4 percent growth and is due to the slump in private consumption and a near stalling of manufacturing activities, the agency said in a note.

The expected growth is based on the assumption of a pick-up from the second quarter due to low base effect and more importantly, if the economy can maintain the same speed through the rest of the year, the note said.

"We expect growth to get some lift from the low base effect of 6.3 percent in the second half of the FY19," it said.

Other factors, including easing monetary policy with faster transmission and also consumption getting a boost from the farmers following the minimum income support scheme, will also help revive growth, it said.

Having set an ambitious target of nearly doubling the economy to $5 trillion over the next five years, the government has taken some measures, including easing foreign investment norms in select sectors, early recapitalization of the nearly crippled state-run banks and also clearing vendor payments on time.

But the Crisil note says these moves will at best address some "pain points" apart from supporting the sentiment.

Elaborating on its not-so-pleasing outlook on the economy, Crisil said private consumption demand, which has been the bulwark of growth for the last few decades, grew by a pale 3.1 percent in the first quarter as against 7.2 percent growth in the preceding quarter.

Consumption slowdown can be due to income slowdown and also due to cost increases, it said, adding apart from these, there are sectoral handicaps in the auto and realty sectors.

On the manufacturing side, it said July and August have had lower purchasing managers' index scores than the same for the first quarter.

In what only aggravates the problems, it said export growth has nearly halved to 5.7 percent in Q1 from 10.6 percent in the previous quarter, while the government consumption has also slowed to 8.8 percent from 13.1 percent.

This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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