India’s GDP to grow at 7.5% in FY19; Current Account Deficit and Rupee a worry, says Care Ratings report

28 May 2018

The country’s GDP growth will accelerate to 7.5 per cent this financial year, from 6.6 per cent in the last fiscal, on better performance from the industrial and agricultural sectors, a report said today. Headline inflation, lending rates, fiscal prudence, current account deficit (CAD) and exchange rates, however, are the areas of concern, the report by Care Ratings said. “We are expecting the GDP to grow by 7.5 per cent in 2018-19. This growth will be contingent upon favourable monsoon, pick up in investment and increased private sector spending supported by continued government spending,” said Madan Sabnavis, chief economist, Care Ratings.

The estimates in the report have been made assuming that crude oil does not spiral over the present USD 80 per barrel and settles down at up to USD 75. The exchange rate will slip further to the 67-68 levels against the US dollar by the end of FY19, the report said, adding that the reserves will grow marginally to USD 435 billion, from USD 425 billion at present.

For the CAD, it said the wider trade deficit, an estimated slowdown in the portfolio flows and increased oil prices will result in the gap widening to up to 2.5 per cent of GDP for FY19, from the 1.7 per cent for the first nine months of FY18. The agency expects farm sector growth to inch up to 4 per cent, from the 3 per cent in the year-ago period, and industrial output growth to go up to 6 per cent, from 4.3 per cent in the previous year.

The consumer price inflation will go up to 5.5 per cent for the fiscal, from the 3.6 per cent in FY18, which may result in rate hikes of up to 0.50 per cent by the inflation-focused Reserve Bank of India during the year.

The report, however, said that the NPA-saddled banking sector will have an “upward bias” with credit growth estimated to go up to 12 per cent and deposits to swell by 10 per cent, it said, adding NPAs will be a “major challenge” for lenders. The agency feels meeting the wider 3.3 per cent target on the fiscal deficit will be difficult and adherence will depend on achievement of the Rs 80,000-crore divestment target, GST collections and tax receipts.

Source: PTI