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3 things to watch about India’s economic outlook for 2018-19
It is the beginning of a new financial year and everybody is interested about India’s economic prospects for the coming year. The impact of demonetisation and GST implementation has slowed down the economy in 2017. India lost its top rank to China as the fastest growing economy. But the tide seems to be shifting.
According to the International Monetary Fund (IMF), India is expected to regain its title as the world’s fastest growing economy in 2018 and 2019. Here are a few factors to watch for in the coming year.
Here are three things to note:
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Fiscal deficit outlook:
The Indian Finance Minister Arun Jaitley revised the fiscal deficit target for 2018-19 to 3.3% of the Gross Domestic Product (GDP). The original target for the year was 3%. This move came after the fiscal deficit target for 2017-18 was breached. The IMF has welcomed India’s target of 3.3% for FY2019 saying that this would help the country return to the path of fiscal consolidation.
Fiscal deficit is defined as the difference between the total revenue and total expenditure of the government. So whenever the expenditure is greater, this figure indicates the total borrowings required by the government.
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Interest rates ahead:
In its first bi-monthly meeting of FY2019, the RBI’s Monetary Policy Committee has maintained the status quo on interest rates. The committee voted 5:1 in favour of an unchanged policy rate. The repo rate (or key lending rate) continues to stay at 6% for the fourth time in a row while the reverse repo rate is unchanged at 5.75%. Over the past year, the Monetary Policy Committee by the RBI has taken a cautious approach regarding interest rates. This decision by the RBI is consistent with its aim of achieving its medium term goal of 4% CPI inflation (within a +/- 2% band). At the same time, the central bank hopes to support economic growth in the country.
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Corporate performance expectations:
Corporate India is expected to enjoy a good run in the year according to market experts. Global Analytical Company Credit Rating Information Services of India Limited (CRISIL) suggests that Indian corporate companies could benefit from favourable factors such as sustained demand, benign inflation, firm commodity prices and better financial metrics compared to the previous year.
Sectors such as steel, transport and logistics could witness an improvement due to better demand and higher growth prospects. On the other hand, investment-linked sectors such as thermal power plants, real estate and capital goods could face speed bumps due to low demand among consumers.
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Rs 80,000 crore
This is the disinvestment target set by the Indian government for the year 2018-19. The government has increased the year-on-year target by as much as 10%. Disinvestment is the process of selling government assets such as public sector units. This undertaking is a method adopted by the government in order to meet its fiscal deficit targets. The proceeds from the privatisation of Air India will be a major contribution towards this target.
