World Bank report pegs India’s FY20 growth rate at 6 per cent
A labourer pushes a handcart loaded with garlic sacks at a wholesale market in Kolkata, India. Reuters
This comes as another bleak outlook for the economy, after recent downward revision of GDP estimate by Asian Development Bank (ADB) and Organisation of Economic Co-operation and Development (OECD) apart from the RBI and a couple of rating agencies.
“In India, after the broad-based deceleration in the first quarters of this fiscal year, growth is projected to fall to 6.0 per cent this fiscal year,” said the report named “South Asia Economic Focus, Fall 2019: Making (De)centralization Work”.
It, however, said that growth is expected to gradually recover to 6.9 per cent in fiscal year 2020 and to 7.2 per cent in the following year.
The growth forecast for India for the financial year 2019-20 was even lower than that of Nepal and Bangladesh, which estimates to grow at 6.5 per cent and 7.2 per cent respectively.
The report said: “The remarkable weakness of Indian economic activity during the first half of 2019 is largely driven by external and cyclical factors. However, during this downturn several structural problems have come to the surface.”
One of these problems is related to vulnerabilities in the financial markets that have constrained credit supply, the report said, adding that financial sector reforms are needed to bring India back to a rapid growth path.
The estimate comes, just days after Moody’s Investor Services and India Ratings and Research reduced their FY20 growth forecast for India to 5.8 per cent and 6.1 per cent, respectively.
The RBI in its Monetary Policy Report - October 2019, sharply revised the India’s GDP growth estimate for the current fiscal to 6.1 per cent from 6.9 per cent. Recently, the ADB and the OECD lowered India’s growth forecasts to 6.5 per cent and 5.9 per cent, respectively.
Meanwhile the Reserve Bank of India sharply lowered its FY20 growth forecast from 6.9 per cent earlier to 6.1 per cent. However, RBI expects 2QFY20 GDP growth at 5.3 per cent and it forecasts sharp revival to 6.9 per cent in 2HFY20. The Indian rupee closed at Rs 70.89 a US dollar on Friday after RBI slashed the repo rate by another 25 basis points.
In a unanimous decision, RBI cut its repo rate by 25 bps to 5.15 per cent, taking cumulative cut to 135 bps for CY19 to support growth. Monetary policy stance was maintained as “accommodative”.
Meanwhile, Foreign Institutional Investors (FII) sold Rs 2,792.21 crore in October as yet and the benchmark Sensex has ended lower for the last five sessions.
Reserve Bank of India (RBI) has ruled out any special liquidity facility for Non Banking Financial Institutions (NBFCs) saying there is enough in the system to meet their needs for borrowings and it is for the lenders to take a call on lending to the NBFCs.
“Reserve Bank’s position is that there is adequate liquidity in the system and it is for the lenders to take a view on which borrower to give money to and I do not think at this moment we are looking at a liquidity facility for NBFCs”, RBI deputy Governor NS Vishwanathan said in an analyst meet after the Monetary Policy Committee (MPC) meeting.
The State Bank of India (SBI) announced lowering its marginal cost of funds based lending rate (MCLR) by 10 basis points across all tenors to 8.05 per cent from today (Oct.10). The MCLR cut will make home and other retail loans cheaper for the existing borrowers.
The bank’s one-year MCLR has been brought down from 8.15 per cent per annum to 8.05 per cent per annum. This is the sixth cut in MCLR in FY 2019-20 and it comes days after the Reserve Bank of India (RBI) lowered the repo rate by 25 basis points.
“In view of the festival season and to extend the benefit to customers across all segments, the SBI has reduced its MCLR by 10 bps across all tenors,” the country’s largest state lender said in a statement.
MCLR refers to the minimum interest rate of a bank below which it cannot lend, except in some cases allowed by the RBI. MCLR rates are based on a bank’s own cost of funds. So if an existing home loan is linked to the SBI’s MCLR rate, the latest cut may not bring down its EMIs immediately. MCLR-based loans generally have a one-year reset clause.
To new borrowers, the SBI now also offers a repo-rate linked home loan scheme. Under this scheme, the loan rate gets adjusted as and when the RBI revises its benchmark rate.
The SBI charges a spread of 265 basis points over the RBI’s repo rate (currently at 5.15 per cent) to calculate its external benchmark-based lending rate. The bank also charges a premium for effective home loan rate to keep its margins intact.
Indo-Asian News Service
