GST: India Ratings pegs FY20 GDP growth at 7.5%

India Ratings said growth could have been more robust had it not been for an abrupt rise in crude oil prices and depreciation of the domestic currency earlier this year

The Indian economy is expected to grow at 7.5 percent in FY20, a pace similar to the Centre’s growth projection for the current financial year, India Ratings said on January 17.

According to government estimates, India’s real or inflation-adjusted Gross Domestic Product (GDP) will grow at 7.2 percent in FY19, implying an average growth of 6.75 percent between October and March, signalling a slowdown amid festering rural distress.

India’s GDP — the total value of goods and services produced in the country — grew 8.2 percent and 7.1 percent during April-June and July-September quarters, respectively, in FY19.

The rating agency said there has been a sharp recovery in growth post-demonetisation and implementation of Goods & Services Tax (GST) and that growth could have been more robust had it not been for an abrupt rise in crude oil prices and depreciation of the domestic currency earlier this year.

On the domestic front, frequent revisions in GST rates have led to a revenue loss, agrarian distress, slow progress on insolvency cases and liquidity crunch faced by non-banking finance companies (NBFCs) post the Infrastructure Leasing & Financial Services (IL&FS) saga were some of the factors that delayed further pick-up in growth.

“However, GDP growth in FY20 will be more dispersed and evenly balanced across sectors as well as demand-side growth drivers,” the ratings agency said in a report.

India Ratings expects average retail inflation to be 3.5 percent in FY19 and 4.3 percent in FY20, coupled with a normal monsoon and Indian crude oil basket averaging about $55 a barrel.

“This may prompt the Reserve Bank of India to change its policy stance from calibrated tightening to neutral in the forthcoming February 2019 monetary review, but the agency believes a rate cut will happen in FY20,” it said.

The ratings agency expects the government to breach its budgeted fiscal deficit target of 3.5 percent.

It has also taken into account the possibility of a fiscal package for distressed farmers in the Vote on Account that will be announced on February 1. “In case the government decides to pay Rs 10,000 per acre annually to small and marginal farmers, under ceteris paribus condition, this will push Centre’s fiscal deficit by 72 bps in FY20. Though not an easy option, if opted, it will delay the rate cut process,” India Ratings said.

Agriculture, industry and services sectors are expected to contribute to gross value added (GVA) growth next year from the supply-side. Key support to GVA growth is expected to come from services (8.3 percent), followed by industry (7.4 percent) in FY20 from 7.3 percent and 7.8 percent this fiscal, respectively.Under normal monsoons, agricultural GVA is expected to grow at 3 percent from 3.8 percent this fiscal.

Source- Moneycontrol.

The post GST: India Ratings pegs FY20 GDP growth at 7.5% appeared first on GST Station.



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