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January 29, 2019

Indian Economy: Home, quite alone

The global growth momentum is expected to soften in 2019, with growth slowing in majoradvanced economies including the United States (US), Europe and China. Moreover, risksare tilted to the downside. With weak global environment, India will have to lean ondomestic factors. And consequent to the government pursuing a fiscal consolidation path,the pickup in growth is expected to be only gradual. A change in the growth mix is on cards,with the private sector likely to take over the baton from the government.


In fiscal 2020, CRISIL expects gross domestic product (GDP) to grow 7.3%, compared with7.2% in fiscal 2019, under the assumptions of normal rains, lower crude oil prices than in2018 and a stable political outcome. Private consumption and investment are expected tobe the key drivers of India’s growth in fiscal 2020. Private consumption growth is likely tofind support from softer interest rates and improvement in farm realization, as foodinflation moves up. Plus, the lower base effect will help. Investment, especially from theprivate corporate, will improve, given the continuously improving capacity utilization andthe end of the de-leveraging phase for corporates.


However, the risks to our growth forecast are tilted to the downside: (a) monsoon risk – if2019 happens to witness El Nino, as forecasted by the National Oceanic and AtmosphericAdministration of US, the agriculture GDP could erode and rural distress could accentuate;(b) political risk - if the general elections this year were to yield a fractured mandate andderail/delay the reforms process, the implications on sentiments, investments andgrowth could be adverse; (c) oil price risk – if crude oil prices were to spike and stay highthrough the fiscal, India’s manufacturers could face input price pressures; (d) weakerglobal outlook – if the global slowdown is more than expected, then global demand andtrade growth could severely slowdown, creating adverse consequences for India’sexports.


As for the other key macros, we expect the Consumer Price Index (CPI)-based inflation topick up to 4.5% in fiscal 2020, compared with an estimated 3.7% in fiscal 2019. While fuelinflation will be benign, pressure from food and core inflation is expected to weigh on theheadline inflation. Current account deficit (CAD) is expected to reduce to 2.4% of GDP infiscal 2020 from 2.6% in fiscal 2019, supported by lower crude oil prices.