India Ratings and Research on Wednesday said that it expects gross domestic product (GDP) to grow at 5.5 per cent in FY21. The agency's forecast is marginally higher than the GDP growth of 5 per cent estimated by National Statistical Office for FY20.
The current slowdown in economic activity, according to the agency, is primarily due to the abrupt and significant fall in lending by non-banking financial companies.
The other reasons were the reduced income growth of households coupled with a fall in savings and higher leverage, and inability of the dispute resolution systems to quickly unlock the stuck capital.
"Although some improvement in FY21 is expected, these risks are going to persist. As a result, the Indian economy is stuck in a phase of low consumption as well as low investment demand," India Ratings said.
It added that a strong policy push coupled with some heavy lifting by the government is required to revive the domestic demand cycle.
The government has announced a slew of measures recently to prop-up the economy, but India Ratings believes they will show results only in the medium term.
All eyes are on the forthcoming union budget, to be presented on February 1, 2020. India Ratings expects the shortfall in the tax plus non-tax revenue to result in the fiscal deficit slipping to 3.6 per cent of GDP (budgeted 3.3 per cent) in FY20, even after accounting for the surplus transferred by the RBI.
The external environment remains challenging for exports due to trade friction and protectionist policy pursued by many developed economies, the agency said.
"As a result, India's exports of goods and services are likely to witness negative growth of 2.0 per cent in FY20. With some breakthrough in the US-China trade talks, India Ratings expects external environment to improve somewhat in FY21," India Ratings said.
India Ratings expects the Indian rupee to average 73 against the dollar in FY21.