IHS Markit in its latest report has said that India’s real Gross Domestic Product (GDP) growth is likely to slip below 5 percent in the current financial year (FY20) as the impact of stimulus measures will take time to filter through to the economy. It noted that financial sector fragilities continue to weigh on the country’s economic growth momentum, with the high level of non-performing loans on the balance sheets of the public sector banks (PSBs), constraining their new lending.
According to the report, there are also risks from potential contagion effects from troubled non-bank financial companies (NBFCs) to the balance sheets of some commercial banks, which could further weigh on the overall pace of credit expansion. It also said that confronted with the sharp slowdown in economic growth momentum, the government will face increasing pressure to roll out additional fiscal measures to bolster manufacturing output and kick-start an upturn in the investment cycle. It noted that such measures could include accelerated government spending on infrastructure projects such as roads, railways, and ports, as well as urban infrastructure such as affordable housing and hospitals.
Furthermore, the report stated that given that the process of strengthening bank balance sheets has been slow, taking a number of years already, India’s financial sector problems are likely to remain a drag on the pace of economic growth over the medium-term outlook. Also, it said any turnaround in the investment cycle could also be relatively protracted, depending on the ability of the government to accelerate its own infrastructure spending program.