The likelihood of Indian GDP growth coming at below 7 percent in 2019-20 is quite high despite aiding factors like low oil prices and an expansionary budget, a report said Wednesday.
Global slowdown, tight financial conditions and an uncertain political environment in the election year would be the biggest headwinds for growth, the report by Japanese brokerage Nomura has said.
The report added that these headwinds are likely to keep the growth mix moving towards consumption and away from investment. It has added that the elections ruin the outlook for fresh investment.
It said that monetary accommodation of fiscal stimulus effectively neuters the crowding out of private investment through the interest rate channel. It went on to say that the upcoming elections will worsen the outlook for fresh investment.
Elaborating on elections, the report said that investment growth could gain some of its lost momentum from October 2019, when short-term political uncertainty ebbs and easier monetary policy starts to have a positive impact.
On oil, it said the crude prices are gaining foothold and pegged the benefit at only 0.1 percentage point.
The jump in credit is due to personal loans and shadow bank financing, it said, adding the NBFCs continue to face a liquidity crunch from risk-averse mutual fund backers.
This has affected the economy. It is visible in sectors such as commercial real estate and small and medium enterprises. These issues can drag down GDP growth by 0.2-0.3 percentage points, the report mentioned.
In 2018, the cyclical recovery was driven by natural tailwinds of remonetisation and escape from nascent GST-related issues, stressing that 2019 will not be the same as earlier year.
“Given headwinds are currently overpowering tailwinds, we maintain our sub-7 percent GDP growth for FY20,” it added.
