India expects economic growth rate to accelerate in 2019-2020

The government's latest economic survey warns of challenges with tax collections.

    India's government is predicting a small increase in the country's economic growth rate [File: Mahesh Kumar A/AP]
    India's government is predicting a small increase in the country's economic growth rate [File: Mahesh Kumar A/AP]

    India has raised its economic growth forecast for the current fiscal year to 7.0 percent, from the 6.8 percent for the year that ended March 31, which was the slowest pace in five years.

    The government's economic survey, presented to parliament on Thursday, said India will face a challenge on the fiscal front following an economic slowdown impacting tax collections amid rising state expenditure on the farm sector.

    However, the investment rate was expected to pick up following improvement in consumer demand and bank lending, the report said.

    "The growth in the economy is expected to pick in 2019/20 as macroeconomic conditions continue to be stable," the finance ministry's chief economic adviser Krishnamurthy Subramanian, the report's main author, said.

    In January-March, annual growth slumped to 5.8 percent, the slowest pace in 20 quarters. Growth for the financial year that ended in March already disappointed analysts, and indicators such as plummeting industrial output and car sales have stoked fears of a deeper slowdown.

    The survey, an annual report on the health of the economy, was released the day before Finance Minister Nirmala Sitharaman presents the budget statement.

    Prime Minister Narendra Modi's government is widely expected to push up spending to spur economic growth through tax incentives to boost consumer demand and investment, officials of his political party said.

    Modi won a second term with a landslide victory in general elections held in April and May.

    A shortfall in monsoon rains, pivotal for the farm sector that constitutes about 15 percent of the economy, employing nearly half of India's workers, has increased concern about rural distress and strengthened the case for government intervention.

    A deepening liquidity crisis among India's non-banking financial companies is also hurting private spending, hitting sales of everything from houses to car parts.

    India's central bank, the Reserve Bank of India (RBI), has cut its benchmark repo rate by 75 basis points since February but commercial institutions have only reduced lending rates by 10-15 basis points as they are saddled with huge stressed assets amounting to nearly $150bn.

    The government report said the accommodative monetary policy of the central bank could help decrease real lending rates and push investments.

    SOURCE: Reuters news agency