Mumbai: The consumption slump, a major challenge afflicting the economy, cannot be attributed to the NBFC crisis as it predates the first default by infra lender IL&FS, says a brokerage, which has also slashed growth forecast to 6% with a downward bias.
Many people attribute the deepening slowdown in consumption to the NBFC crisis that began in September 2018 when IL&FS went belly up following which consumption financing--a forte of shadow banks, stopped with a chill in disbursements by these players.
According to Prachi Mishra, the chief economist at Wall Street brokerage Goldman Sachs, her analysis indicates that consumption has been falling since January 2018, which is much before the end August 2018 default by IL&FS which triggered the liquidity crisis for NBFCs.
She said the fall in consumption is responsible for a third of the overall dip in overall growth, with the global slowdown coupled with funding constraints. "There is a slowdown and the growth numbers have fallen by 2%age points," Mishra said, speaking at an event by The Economist.
However, she expects growth to tick up in the second half, courtesy the easy money policy of the RBI which has slashed the key policy rates by a record five times or by 135 bps to a decadal low of 5.15% since February and also the push to sentiment from the growth enhancing measures like the recent massive tax giveaways to corporates.
Mishra said investments and exports have been sliding for a long time, but it is the steep consumption slump which has is the new pain area.
"The present slowdown is protracted and has lasted for over 20 months now," Mishra said, adding this is different from the growth headwinds like demonetisation or even the 2008 financial crisis, which were temporary in nature.
The comments come amid growth slowing down to a six-year low of 5% in the June quarter including by the RBI which now expects the economy to expand by 6.1% and also by multilateral agencies like IMF and the World Bank.
