Crisil pegs FY20 growth marginally high at 7.3%

Mumbai: The economy may grow marginally higher at 7.3 percent in FY20-from a likely 7.2 percent in the outgoing fiscal year--if the forthcoming hustings provides a clear mandate, the monsoons remain normal and crude prices trend down or remain lower, says a report.

The drivers for growth in FY20 are likely to be domestic--private consumption and investment, Crisil said in its FY20 outlook Wednesday, adding the GDP may grow by 7.3 percent next fiscal, just 10 bps over this fiscal.

However, both the Crisil projections are way below the IMF's latest forecast. The Fund had Monday pegged the GDP growth at 7.5 percent for 2019 and 7.7 percent for 2020 calendar years.

"With the present government likely to stick to the fiscal consolidation path, the pick-up in growth is expected to be only gradual. A change in the growth mix is on cards, with private sector likely to take over the baton from the government," the report said.

Private consumption is likely to find support from softer interest rates and improvement in farm realisations, as food inflation moves up, it added.

It expects global crude prices to soften to average at USD 60-65 range in FY20 compared to USD 68-72 in FY19 as overall global demand slows.

In FY19, Crisil expects GDP to grow at 7.2 percent.

Overall investments rebounded in FY19 with fixed investments growing 12.2 percent, up from 7.6 percent in FY18. For FY20, sustaining the momentum in overall investments will be a tough task without support from private investments.

"With continuously improving capacity utilisation and the end of the de-leveraging phase for corporates, conditions are ripe for a revival of private corporate investments. A stable political outcome will facilitate this," the Crisil report said.

It, however, said if the general elections this year were to yield a fractured mandate and derail/delay the process of reforms, the implications on sentiments, investments and growth could be adverse.

Going forward, export face risks of weakening global trade growth owing to escalating trade wars. But it could also benefit from bilateral trade wars, especially between the US and China, the report said.

The rating agency said it sees CPI inflation in FY20 at a higher 4.5 percent.

It also sees current account deficit to narrow to 2.4 percent in FY20 from 2.6 percent of GDP in FY19.

The rupee is also likely to remain volatile and settle at 72 levels against the dollar on average by March 2020 up from a likely close of 71 by March 2019.

The report said domestic interest rates, which had risen last year, are expected to soften in FY20.

"With inflation under control, softer crude oil prices relative to last year, we believe the Monetary Policy Committee would change its stance to neutral from calibrated tightening and could cut the repo rate by at least 25 bps (from 6.50 percent currently)," it said.

The agency expects the 10-year government bond yield to average at 7.5 percent by March 2020 from 7.7 percent in March 2019.