Economic growth projections in the recent budget appear ambitious taking into view the structural and cyclical challenges facing the Indian economy, Moody’s Investors Service recently said. The budget expects nominal gross domestic product (GDP) growth of 10 per cent in 2020-21, followed by 12.6 per cent and 12.8 per cent in the next two fiscals. But Moody’s saw GDP growth rising to around 8.7 per cent in the next fiscal from about 7.5 per cent in the current, according to a report.
Stating that growth outlook will remain weak, it has put real GDP growth during the current fiscal at 4.9 per cent, slightly below the government’s forecast of 5 per cent. For the next fiscal, it estimated real GDP growth of 5.5 per cent, lower than 6-6.5 per cent projected by the government’s Economic Survey.
“Growth has remained relatively weak as a prolonged deleveraging cycle and ongoing stress among non-banking financial institutions (NBFIs), which has constrained the financial system’s overall provision of credit, weigh on consumption and investment,” it said in a detailed commentary on the budget.
For fiscal 2020-21, it lowered real GDP growth forecasts to 5.5 per cent from 6.3 per cent previous estimate. And for the following fiscal, it put the real GDP growth at 6 per cent from 6.7 per cent projected earlier.
“The significant slowdown in financial sector credit growth from NBFI liquidity constraints and asset quality issues among public sector banks has exacerbated prolonged weakness in private investment and a material decline in consumption, due in part to financial stress among rural households and weak job creation,” Moody’s said.
The nominal GDP growth, it said, has also declined significantly. Following 11.2 per cent expansion in 2018-19, the government had forecast 12 per cent nominal GDP growth in its July 2019 budget for the current fiscal. However, according to the government’s first advance estimate of GDP last month, nominal GDP growth is likely fell to a much lower rate of around 7.5 per cent for full 2019-20.
“These forecasts (made the Budget) appear ambitious given the combination of structural and cyclical challenges that the Indian economy faces,” it said. Moody’s said the government will face challenges in achieving its deficit target for the fiscal year ending March 2021, amid persistent structural and cyclical headwinds to growth.