The Indian economic growth is showing signs of weakness. In the first quarter of 2019, the GDP grew just 5.8 percent, as compared with the average growth of 7.4 percent year-on-year in 2018. According to a Scotiabank research report, the real GDP is expected to grow 6.5 percent year-on-year as a whole.
“In 2020, real GDP growth is expected to pick up slightly, reaching the lower end of the economy’s estimated potential growth of 7–7½ percent y/y. The current soft patch is fairly broadly based”, stated Scotiabank.
Investment activity and private consumption growth are easing, owing to softer consumer and business sentiment, higher inventories, and lower hiring intentions. In the meantime, net exports continue weigh on the economy as import gains are surpassing those of exports. The recent decision by the U.S. administration to terminate India’s designation as a beneficiary developing nation that granted it preferential trade treatment would negatively affect the nation’s external sector outlook.
However, the effect is expected to be limited for the economy as a whole as India is less export oriented than its regional peers and its shipments to the U.S. only account for 2 percent of GDP. Softer global and domestic demand conditions continue to be reflected in India’s manufacturing sector and its eight core industries.
“We expect that stimulative monetary and fiscal policies will provide support to the Indian economy over the coming quarters. Continued infrastructure outlays, lower interest rates, and expected political stability in the period ahead should underpin investment prospects, while favourable demographics and the government’s fiscal measures—such as lower GST rates on certain goods and cash transfers to small -scale farmers—are set to underpin consumer spending. Accordingly, we believe that India will be able to take back its position as the fastest-growing major economy before the end of the year”, added Scotiabank.
