For the first time in seven years, India’s GDP grew below 5 percent year-over-year, with three of the four growth engines—private consumption, private investment, and exports—slowing down significantly.On the industry side, several core sectors including auto, real estate, and manufacturing are in deep waters because of low demand resulting in a downward spiral of weakening corporate profits, waning business sentiments, and declining investments. India continues to face global headwinds owing to policy uncertainties, falling growth and trade volumes, and technological changes across the world.
Leading economic indicators point to gradual growth in the current quarter as well. With credit growth and rural income remaining weak, private consumption spending is unlikely to see a pick up soon. Besides, high food inflation is weighing on the pockets of consumers.
On the investment side, excess capacity, falling order books, and highly leveraged corporate balance sheets will likely keep business confidence low and result in further postponement of investment decisions.Consequently, RBI has slashed growth expectations in FY20 to 5 percent, while most global agencies expect the GDP growth range within 4.5 percent- 5.5 percent.
A few of the economic fundamentals are weighing on the economic outlook as well. The fiscal deficit for the period April-October 2019 has crossed this fiscal year’s target indicating further stress on fiscal concerns for the government. With growth slowing and government revenues likely to be low because of reduced corporate tax rates, there are concerns over fiscal slippage this year.
