New Delhi: India's real GDP growth in 2019-20 fiscal is expected to be slightly below 5% as the impact of stimulus measures will take time to filter through to the economy, IHS Markit has said.
Latest GDP data for July-September quarter showed a significant further moderation in the pace of economic growth to 4.5%, the weakest in six years with a key contributory factor being a slump in manufacturing output.
This compared with the 5% growth rate registered in the previous quarter and 7% rate recorded a year ago in September quarter of 2018. For the first half of 2019-20 fiscal, GDP growth slowed to a pace of 4.8% compared to the 7.5% a year back.
"Financial sector fragilities continue to weigh on India's economic growth momentum, with the high level of non-performing loans on the balance sheets of the public sector banks, constraining their new lending," IHS said in a report.
Furthermore, there are also risks from potential contagion effects from troubled non-bank financial companies (NBFCs) to the balance sheets of some commercial banks, which could further weigh on the overall pace of credit expansion.
In response to the growth slowdown, the Reserve Bank of India (RBI) has eased policy rates significantly during 2019, with a series of rate cuts since February, while the government announced a large reduction in corporate tax rates in September to help boost new investment spending.
"Following the weak GDP outturn for the September quarter, Indian real GDP growth in FY 2019-20 is expected to be slightly below 5%, as it is anticipated that the impact of stimulus measures will take time to filter through to the real economy," IHS said.
The RBI also lowered its GDP growth forecast for 2019-20 from 6.1% to 5% on December 5. "Confronted with the sharp slowdown in economic growth momentum, the Indian government will face increasing pressure to roll out additional fiscal measures to bolster manufacturing output and kick-start an upturn in the investment cycle.
Such measures could include accelerated government spending on infrastructure projects such as roads, railways, and ports, as well as urban infrastructure such as affordable housing and hospitals," it said.
IHS said given that the process of strengthening bank balance sheets has been slow, taking a number of years already, India's financial sector problems are likely to remain a drag on the pace of economic growth over the medium-term outlook.