Ind-Ra pegs India’s GDP growth for FY21 at 5.5%

India Ratings and Research (Ind-Ra) said on Wednesday it expects India’s GDP to grow at 5.5% in FY21 even as the economy continues to suffer from low consumption and low investment demand.

The ratings firm’s estimate is a marginal improvement over the GDP growth of 5% estimated by National Statistical Office for FY20. Ind-Ra attributed the subdued growth to a fall in lending by non-banking financial companies (NBFCs), reduced income growth of households and a fall in savings, and the inability of the dispute resolution and judicial systems to quickly unlock stuck capital.

“The Indian economy is stuck in a phase of low consumption as well as low investment demand. Ind-Ra believes a strong policy push coupled with some heavy lifting by the government is required to revive the domestic demand cycle and catapult the economy back into a high growth phase,” the ratings agency said in a statement.

It also expects the fiscal deficit to slip to 3.6% of the GDP (budgeted 3.3%) in FY20, due to a shortfall in the tax and non-tax revenue despite the surplus transferred by the Reserve Bank of India.

“A continuance of low GDP growth even in FY21 means subdued tax revenue and limited room for stepping-up expenditure. Ind-Ra believes the government will have to construct the FY21 Budget in a way that expenditure is rationalised and prioritised and all avenues of revenue generation are tapped,” it said in a statement.

Ind-Ra believes that the measures announced by the Narendra Modi government to give a boost to the economy, including a cut in corporate tax rate, will only start having an effect in the medium term.

Ind-Ra suggests that the government should spend on creating direct employment and “putting more money in the pockets of the people at the bottom of the pyramid”.

"This will support the consumption demand. Therefore, budgetary allocation to heads such as rural infrastructure, road construction, affordable housing and MNREGA must be prioritised and allocation for non-merit subsidy/expenditure less critical for growth be rationalised,” it added.