Fiscal Outlook 2020
Weighing both the drivers and risks for the economy in fiscal 2020 we have arrived at our outlook for the economy for the coming year. The economy as a whole is set for a great positive year ahead but there are areas of concern which if left unchecked could cause concern in the near future.
NPA resolution and improving NPA situations:
A major driver for the economy for fiscal 2020 might be the improvement in the NPA situation which would lend a great deal of confidence to the banks and credit institutions hence seeing a revival in lending and borrowing. The industry is also seeing a better provision coverage ratio.
Capital infusion into PSU banks:
Another major boost to the credit cycle would be the capital increase in the PSU banks which is expected to increase the lending and borrowing.
Tax Sops and direct benefits scheme:
The government in has provided minor tax sops which would benefit a major chunk of the lower strata, this would help drive up spending due to the higher disposable income with the people. (the lower strata have a higher marginal propensity to spend and any small benefits lead to a rise in spending). The government has also launched a slew of direct benefit schemes to the lower strata including farmers and agri-focussed scheme.
A weak monsoon or a below monsoon can hurt India’s GDP growth due to lower agricultural produce, it could lead CPI inflation to spike due to a rise in food prices (which form a major chunk of the cpi basket).
Global slowdown and trade wars
The global economy has seen growth slowing down on the back of trade tensions and conservativism in investments. The US-China clash could see drag in exports further bringing down the GDP growth. India has seen its own share of trade tensions with these two global powers which are India’s major partner in economic and manpower export/imports.
Oil price spike
India still remains vulnerable to oil price shocks a jump in the oil price could see India’s CAD widen and put pressure on domestic inflation.
The NBFC glut has slowed down borrowing in various sectors and has put pressure on spending in large parts of the economy. If the NBFC troubles are not resolved soon enough the economy might face trouble riding out an impending economic slowdown smoothly.
Automobile sector demand slowdown
The last few quarters have seen a slow down in demand for vehicles. (demand for vehicles is often a great sign of the health of the economy). This slowdown if dragged out for too long can adversely affect multiple other sectors (such as steel, rubber, auto-lending, etc.)