India predicts slower 5% growth, likely prompting budget stimulus

Wednesday, 8 January 2020 00:00 - - {{hitsCtrl.values.hits}}

A labourer sleeps on sacks as traffic moves past him in a wholesale market in the old quarters of Delhi, India, 7 January 2020 - Reuters

New Delhi (Reuters): India on Tuesday forecast 5% growth for the current financial year, the slowest pace in 11 years, which will likely prompt the finance minister to opt for extra fiscal stimulus when she presents the annual budget next month.

The government is expected to announce tax concessions for individuals and increase spending on infrastructure after cutting corporate tax rates last year, officials and economists said.

Finance Minister Nirmala Sitharaman last week unveiled a plan to invest 102 trillion rupees ($1.4 trillion) in infrastructure over the next five years in a bid to make India a $5 trillion economy by 2025.

Annual economic growth slowed to 4.5% in the July-September quarter, the weakest pace since 2013, blamed on weakening demand and private investment, putting pressure on Prime Minister Narendra Modi to speed up reforms as five rate cuts have failed to help. The financial year ends in March.

Gross domestic product is estimated to grow 5.0% in 2019/20, slower than the 6.8% growth of 2018/19, the Ministry of Statistics said in a statement.

Indian growth had slowed to 3.1% in 2008/09 after the global financial crisis.

“The slowdown in economic growth implies the government will have to come up with a fiscal stimulus in the budget,” said N.R. Bhanumurthy, economist at National Institute of Public Finance and Policy, a Delhi-based think-tank.

He said latest growth numbers would impact revenue estimates and government spending for the next financial year. Growth was likely to be around 6-6.5% in 2020/21, he said, following a steady a recovery.

Manufacturing is forecast to grow 2.0% in 2019/20, compared to 6.9% growth in 2018/19, the Ministry of Statistics said.

Construction is likely to grow 3.2% in 2019/20, compared to 8.7% the previous year, while the farm sector is forecast to grow 2.8%, compared to 2.9% a year earlier, the statement said.

Private economists expect growth to steadily pick up in the next fiscal year. Data so far this year points to a weaker-than expected activity, with global trade tensions and rising crude oil prices posing risks.

The unemployment rate rose to 7.7% in December from 7% a year earlier, data released by the Centre for Monitoring Indian Economy, a Mumbai-based think tank, showed.

The statistics ministry will release growth data for the October-December quarter on Feb. 28, along with revised full-year growth estimates.

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