The ratings agency forecasts GDP growth of 6-7 percent for India beyond next year
Reforms and not fiscal stimulus will bring the Indian economic growth back on the expected track, according to S&P Global Ratings.
Speaking exclusively to CNBC-TV18 the ratings agency noted that measures to liberalise labour market, and Insolvency and Bankruptcy Code (IBC) reforms would be important to support the economy.
“Beyond next year we are forecasting GDP growth of 6-7 percent for India. The country’s fiscal deficit this year is 11 percent of GDP, and there is need to see if the government can pull back deficit to below 10 percent next year. Will have to watch closely if fiscal debt-to-GDP shoots higher than 11 percent,” the agency said.
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It further added that so far there is no indication that India would look at direct government debt monetisation, stating that it would thus would be critical to look at nature and pace of government bond purchases by the Reserve Bank of India (RBI).
“Will need to look at circumstances under which the RBI decides to buy government bonds,” it told the channel.
On the coronavirus outlook, S&P expects the pandemic to be contained by the end of this year. “We expect global growth to come back on path of recovery by 2020-end.”
It however added that there could be risks to the economy if situation is not addressed by a reform process. “Since there is no indication that India would look at direct government debt monetisation, we see risks to the economy if not addressed by a reform process.”
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It noted that IBC has helped alleviate issues in the banking sector; and the government lowered the corporate tax rate to boost private investment; the rate cuts should also be helpful in attracting foreign money.
Adding, “Government measures should help non-banking finance companies (NBFCs) tide over this patch. We do see a decline in growth during a period of healing.”
It also however noted that public sector investment would be difficult given that debt is at 80 percent of GDP.
