The Indian economy will grow at a rate of 7.5% in 2019-20 and growth will be more dispersed and evenly balanced across sectors, according to India Ratings & Research (Ind-Ra). For the current financial year (FY19), the ratings agency pegged India's gross domestic product (GDP) to grow at 7.2%.

The current fiscal year saw a sharp and quick recovery after the twin shocks of demonetisation and the implementation of the goods and services tax (GST). However, FY19, Ind-Ra says, could have seen better GDP growth but for the continued agrarian distress, slow progress on the Insolvency and Bankruptcy Code (IBC) cases, and liquidity crunch faced by non-banking finance companies (NBFCs) after the IL&FS saga.

The ratings agency also sees the government breaching its fiscal deficit target in the current financial year, which is expected to rise to 3.5% of the GDP, instead of the budgeted 3.3%.

“At 7.5%, we will still be the world’s fastest-growing economy…but the fact remains that the kind of problems we are facing internally whether it is jobs, rural distress, or otherwise, this 7-7.5% growth will not be able to take care of that,” said Sunil Kumar Sinha, principal economist and director-public finance, India Ratings and Research. He added that India needs higher growth and it has the potential to grow over 8%.

Ind-Ra expects wholesale inflation to average 3.4%, and retail inflation at 4.3% in FY20. This may prompt the Reserve Bank of India to change its policy stance, from calibrated tightening to neutral in the forthcoming February monetary policy review. The agency sees a rate cut in FY20.

It also sees investments slowly gaining traction with gross fixed capital formation growing 12.2% in FY19 and projected to clock 10.3% in FY20. “This is certainly a comforting development but the flip side is that it is primarily driven by the government capex [capital expenditure], as incremental private corporate capex has yet to revive,” the ratings agency said.

A study the agency conducted of top 200 listed and unlisted non-financial asset-heavy corporates suggests capex in the private sector is unlikely to revive before FY21.

The agency expects all major sectors—agriculture, industry, and services—to contribute to gross value added (GVA) growth in FY20 from the supply side. “Key support to the GVA growth is expected to come from services, followed by industry and they are expected to grow at 8.3% and 7.4%, respectively, in FY20,” it said in a statement.

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