2 min read.Updated: 16 Aug 2019, 02:38 PM ISTReuters
It is difficult to see a turnaround in the foreseeable future as the economy is beset by multiple constraints: ANZ
The bank also slashed its India GDP forecast to 6.5% for FY21
New Delhi: The Australia and New Zealand Banking Group (ANZ) slashed its forecast for India's economic growth to 6.2% in the financial year ending next March from a previous estimate of 6.5%, warning it would be tough for authorities to engineer a turnaround.
In a sign of how much demand has been hit, industry figures released this week showed that sales of passenger vehicles to car dealers plunged 30.9% in July from a year earlier, the ninth straight month of declines and the biggest drop since December 2000.
"It is difficult to see a turnaround in the foreseeable future as the economy is beset by multiple constraints," ANZ said in its note which also downgraded its forecast for the year to March 2021 to 6.5% from 7.1%.
It said sales of cars and consumer durables, as well as passenger air traffic, have shown declining trends, along with investment indicators, such as steel and cement production. It also said exports were weakening because of what it called an overvalued rupee currency.
Sanjay Mathur, chief economist for Southeast Asia and India at ANZ, said the RBI, the nation's central bank, has been unable to get commercial banks to cut interest rates enough to provide much economic stimulus.
The RBI has cut its benchmark repo rate by 110 basis points this year, but major banks have only cut their rates by 40 basis points on average. This is because they are keen to protect margins as they work through high levels of bad loans, estimated at nearly $150 billion.
"The fiscal and monetary stimulus will help revive economic growth but it may take a much longer period to boost growth, as there is a time lag between the policy measures and response," Mathur said.
Separately, credit rating agency Fitch projected a growth forecast of 6.8% for the current fiscal year, but said the RBI's rate cuts were insufficient for "lifting the Indian economy".
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