The government’s advanced estimates forecast a 5% growth in the gross domestic product (GDP) for the year 2019-20. While these estimates are on the lower side, the question is if rising oil prices and depreciating rupee will pull down the estimates further, and how long will it take for the economy to revive?
In an interview with ETCFO, Madan Sabnavis, chief economist of CARE Ratings, a credit rating agency, explains and discusses the economic outlook.
“The year 2020 will be a critical year where hopefully things will fall in place and the economy should be able to inch upwards and grow by 6-6.5% (GDP growth), with a good monsoon season,” said Sabnavis.
He added that the corporates could hope for revival in the second half. Edited Excerpts:
Q: What are your views on the advanced estimates forecast. Also, with volatility in oil prices (with US-Iran tensions), weakening rupee, where do you see the Indian economy heading?
Madan Sabnavis: The Indian economy is presently on weak ground with GDP growth in the region of 5% which is a far cry from the 7% plus number expected at the beginning of the year.
Change for the better will happen gradually with support from accommodative policies of RBI and limited fiscal stimulus of the government.
However, the path upwards will be gradual and more likely to pick up in the second half of the year which will be monsoon dependent again.
The government has to keep pushing with its capex and private sector investment will come in subsequently.
Iran may not have a major impact if the matter gets resolved in the next two weeks. It would become an issue if it lasts for a long period or escalates, impacting the oil economy. The rupee, although depreciating presently, should stabilise as the fundamentals are strong going by the balance of payments (BOP).
Q: What is your sentiment of the health of the economy in 2020? What should India Inc be prepared for?
Madan Sabnavis: The year 2020 will be a critical year where hopefully things will fall in place and the economy should be able to inch upwards and grow by 6-6.5% GDP growth, with a good monsoon season.
Corporates can hope for revival in the second half, albeit a modest one. I believe that unless jobs are created and people have spending power only then can the economy grow rapidly. This has stopped in the last three years and needs to hasten. Companies need to hire more people which will be done only if there is growth. Such circular rationale means that things will happen only slowly.
Q: What should be the main focus areas of the government in 2020?
Madan Sabnavis: The government should first focus on meeting capex targets.
Secondly, it has to ensure along with RBI that the financial system is back on its feet and is able to lend backed by capital and a good asset portfolio.
Thirdly, the disinvestment plan should be completed as per calendar and one should be clear of the process.
Fourthly, farmer support through MSP or some direct procurement through state agencies should be on the agenda as farmers are not receiving the right price in the market.
There should be clarity on the GST structure for corporates as presently there is ambiguity about what the council may do. We do need a clear policy framework for business to operate.
And lastly, there should quick resolution of sector-specific shocks like the one in telecom as regulatory shocks can impact industry prospects quite sharply.
He added that the corporates could hope for revival in the second half. Edited Excerpts:
Q: What are your views on the advanced estimates forecast. Also, with volatility in oil prices (with US-Iran tensions), weakening rupee, where do you see the Indian economy heading?
Madan Sabnavis: The Indian economy is presently on weak ground with GDP growth in the region of 5% which is a far cry from the 7% plus number expected at the beginning of the year.
Change for the better will happen gradually with support from accommodative policies of RBI and limited fiscal stimulus of the government.
However, the path upwards will be gradual and more likely to pick up in the second half of the year which will be monsoon dependent again.
The government has to keep pushing with its capex and private sector investment will come in subsequently.
Iran may not have a major impact if the matter gets resolved in the next two weeks. It would become an issue if it lasts for a long period or escalates, impacting the oil economy. The rupee, although depreciating presently, should stabilise as the fundamentals are strong going by the balance of payments (BOP).
Q: What is your sentiment of the health of the economy in 2020? What should India Inc be prepared for?
Madan Sabnavis: The year 2020 will be a critical year where hopefully things will fall in place and the economy should be able to inch upwards and grow by 6-6.5% GDP growth, with a good monsoon season.
Corporates can hope for revival in the second half, albeit a modest one. I believe that unless jobs are created and people have spending power only then can the economy grow rapidly. This has stopped in the last three years and needs to hasten. Companies need to hire more people which will be done only if there is growth. Such circular rationale means that things will happen only slowly.
Q: What should be the main focus areas of the government in 2020?
Madan Sabnavis: The government should first focus on meeting capex targets.
Secondly, it has to ensure along with RBI that the financial system is back on its feet and is able to lend backed by capital and a good asset portfolio.
Thirdly, the disinvestment plan should be completed as per calendar and one should be clear of the process.
Fourthly, farmer support through MSP or some direct procurement through state agencies should be on the agenda as farmers are not receiving the right price in the market.
There should be clarity on the GST structure for corporates as presently there is ambiguity about what the council may do. We do need a clear policy framework for business to operate.
And lastly, there should quick resolution of sector-specific shocks like the one in telecom as regulatory shocks can impact industry prospects quite sharply.
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