Indian Economy seen growing at 7.4 per cent in 2018-19
05 April 2018
The Indian economy is expected to grow at a faster pace of 7.4 per cent in the current financial year (2018-19) against the 7.1 per cent forecast earlier, according to India Ratings and Research (Ind-Ra).
This combined with an uptick in services sector activity in March that pushed up job growth to the fastest pace in 7 years, may come as a boost to economic policies followed by Narendra Modi government.
The report, however, points to a few headwinds which the government must look into so that growth doesn’t slow down. While higher growth in agriculture and industrial sector may push overall economic growth from production side, both private and public expenditure is likely to fuel growth surge on expenditure side, it said.
The report by India Ratings and Research named mounting non-performing assets (NPAs) in the banking system, soaring bond yields, rising protectionism and tightening fiscal conditions as the major hurdles on the road to India’s economic growth.
The latest decision by the Reserve Bank of India (RBI) to allow banks to spread their provisioning for marked-to-market losses on ‘available for sale’ and ‘held for trading’ portfolios for 3QFY18 and 4QFY18 equally up to four quarters may help the banks, Ind-Ra report said. This may provide banks a much needed leeway in the accounting process and give some relief from rising bond yields.
The government’s increased market borrowings in second half of FY19, if accompanied by adverse fiscal and inflationary developments could put more pressure on the bond market, Ind-Ra cautioned.
The Ind-Ra report also said that the recent easing in the WPI and CPI inflation has helped ease pressure on the Reserve Bank to cut policy rates. The wholesale and retail inflation has come down to 2.48 per cent and 4.44 per cent, respectively, in February 2018 from 2.84 per cent and 5.07 per cent, respectively, in January 2018.
The report further said that any possibility of a rate cut is low during FY19 and that the ability of the Indian economy to face shocks has improved substantially over the last two decades.