SME Times News Bureau | 26 Aug, 2019
The latest round of FICCI's Economic Outlook Survey views
that boosting agriculture sector, strengthening MSMEs and undertaking factor
market reforms are key to steer the economy out of the slowdown
The latest survey puts forth a quarterly median forecast of
6.0% for GDP growth in the first quarter of 2019-20. The growth numbers for the
first quarter are expected to be released by Central Statistics Office (CSO)
Furthermore, the annual median GDP growth forecast for
2019-20 has been pegged at 6.9%,with a minimum and maximum estimate of 6.7% and
While the median growth forecast for agriculture and allied
activities has been put at 2.2% for 2019-20; the industry and services sector
are expected to grow by 6.9% and 8.0% respectively during the current financial
The survey was conducted during the months of June-July 2019
amongst economists belonging to the industry, banking and financial services
With regard to inflation, the latest official numbers report
moderate price levels. The outlook of participating economists on inflation
also remains benign. The median forecast for Wholesale Price Index based
inflation rate for 2019-20 has been put at 2.9%, with a minimum and maximum
estimate of 2.1% and 5.7% respectively.
The Consumer Price Index, on the other hand, has a median
forecast of 3.7% for 2019-20 - with a minimum and maximum estimate of 3.4% and
Concerns remain on external front with median current
account deficit forecast pegged at 2.3% of GDP for 2019-20. Merchandise exports
are expected to grow by 3.6%, while imports are expected to grow by 4.0% during
the year. Overall decline in global growth forecasts, escalating trade
tensions, uncertainty around Brexit and foggy outlook on international crude
oil prices have emerged as key concerns on the external front.
Slower global growth will impact India's growth prospects as
well going forward. In fact, economists unanimously indicated that India?s
potential growth rate would be in 7.0% to 7.5% range, which is lower than the
8% plus potential growth rate estimated until a few years back.
However, a majority of participants felt that potential GDP
growth would settle at the higher end of the range at 7.5%.
The participating economists were sceptical and divided
about replicating the previous high growth performance of over 8% and
sustaining it at that level. Those who were optimistic believed that a
turnaround would be challenging given the current global environment and could
take at least three to four years.
On the strategies to achieve India's potential growth rate,
the surveyed economists suggested four key areas that needed immediate
attention: Boosting Agriculture Sector; Strengthening MSMEs; Undertaking Factor
Market Reforms; and Enhancing Avenues for Infrastructure Financing.
The recently released unemployment numbers by NSSO re-affirm
the grim situation with regard to employment in the country. The participating
economists were asked to indicate areas of improvement that would help create
more jobs, particularly in manufacturing and services sectors.
The participating economists identified four key areas of
improvement that would help create more jobs: Cost of Doing Business;
Regulatory Reforms; Labour Reforms and announcement of Sector Specific Special
The participating economists opined that it was necessary to
ensure availability of capital and access to diversified long-term capital
sources for carrying out productive investments in the economy. Economists felt
that it was necessary for input and, more importantly, borrowing costs to be
lower to drive investments and employment in the country.
Participants also indicated that it was important to carry
out structural reforms in the factor markets and the same has been echoed by
FICCI time and again. Further reforms in areas of land, labour and capital are
needed urgently to enhance competitiveness of the Indian industry.
Furthermore, greater efforts are required to develop the
bond market, non-bank financial sector, and the stock exchanges. Economists also
felt the need for establishing a long-term development finance institution on a
Sharing their outlook on the future course of the monetary
policy, participating economists unanimously felt that the Reserve Bank of
India will continue with its accommodative stance. Majority of them suggested
further cut in the repo rate in the remaining part of fiscal 2019.Economists
felt that the prevailing real interest rates were high.
The participants also signalled that tardy deposit growth is
haunting the banks as it is limiting their ability to lend and is preventing
adequate transmission. Economists suggested that the liquidity situation needs
to further improve for ensuring smooth transmission of the cuts in repo rate.
Further, it has been observed that the saving rate in India
has declined over the past few years, with the decline being sharper in the
This is a major concern as household savings form a very
important source of funds for investment in the economy. Intermediation of
savings into financial assets has also been a challenge. Economists were asked
to suggest ways in which financialization of household savings in India could
Participating economists attributed the dip in net household
savings to lower overall incomes in the hands of the consumer on back of
slowdown in economic growth. They emphasized the need for enhancing GDP growth
and ensuring a more equitable distribution of gains from growth to improve the
Economists also underscored the importance of improving
penetration of financial products to improve financialization of savings.
While commending the government for opening mass bank
accounts under Pradhan Manti Jan Dhan Yojana, participants said they believed
that innovative approaches such as focussing on promoting digital banking need
to be undertaken more aggressively to bridge the gap in access and usage of
Surveyed economists recommended that financial instruments
offered by equity and bond markets should play a major role in diversifying the
available saving options.
Furthermore, from a regulatory standpoint; the government
bond market, the corporate bond market and the equity market are treated
separately in India and the same needs to be corrected.