Page 29 - Banking Finance November 2019

ARTICLE

What should be done

IMF said in its World Economic Outlook. "In the near term,
continued fiscal consolidation is needed to bring down
India's elevated public debt. This should be supported by
strengthening goods and services tax compliance and
further reducing subsidies, Efforts should also be enhanced
on land reform to facilitate and expedite infrastructure
development," the report stated.

The government has a very limited fiscal space given the
budgeted fiscal deficit at 3.4% of GDP. However, current
economic conditions call for some stimulus. It will be difficult
Management commentary suggested that demand is likely for the government to adhere to fiscal consolidation path
to pick up after the elections, especially for materials such and give stimulus. Any consumption stimulus should not be
as cement, as more housing and construction projects would given, it should give investment stimulus.
take off.
On a war footing, they will have to address the issues in basic
infrastructure sectors such as power, roads and railways.
Stability in the new Govt and reduction in global trade
tensions would help matters in reviving growth from hereon.
Relaxation in liquidity tightness and resumption of Govt
spend could provide relief to a large part of the corporate
"In India, growth is projected to pick up to 7.3% in 2019
(2019-20) and 7.5% in 2020, supported by the continued sector and move growth levers in H2FY20.
recovery of investment and robust consumption amid a more Some experts feel that More than monetary and fiscal
expansionary stance of monetary policy and some expected stimulus, what is important at this stage is to undertake
impetus from fiscal policy," IMF said in its World Economic
confidence boosting measures for credit intermediaries and
Outlook report.
improve the availability of funds for the stuck projects in
IMF also cut its global growth forecast for 2019 by 20 basis infrastructure, construction and manufacturing.
points to 3.3%-the lowest since the financial crisis in 2008-
It is expected that the government would undertake
blaming trade tensions between the US and China, loss of
rationalisation of GST rates and reviving corporate capex
momentum in Europe and uncertainty surrounding Brexit. through offering tax breaks could help overcome the current
Both ADB and RBI cut their 2019-20 growth projection for slowing economic activity.
India to 7.2% from 7.4% earlier, blaming rising risks to global
economic growth as well as weakening domestic investment The Central Bank's Monetary Policy Committee could
activity. certainly help matters by cutting rates faster, especially
since the RBI's own inflation forecasts for the next 12
Steps taken months are lower than its 4 percent target. Lower rates can
help bring down bond yields and provide some stability to
IMF commended the government for taking steps to
strengthen financial sector balance sheets through the non-banking side of the financial system.
accelerated resolution of non-performing assets (NPAs) A further reduction in rates is expected to lift sagging
under a simplified bankruptcy framework.
consumer demand. Passenger vehicle sales grew at their
slowest in five years, at 2.7% in FY19. And a rate cut, while
May 19 the Reserve Bank of India (RBI) has announced
helpful, will have to be combined with a policy intervention
another repo rate cut by 25 basis points (bps). This is the to revive the real estate and infrastructure sectors.
third time in a row that the central bank has cut key rates
this calendar year. Borrowers can hope for more rate cuts References -
in the future as monetary policy stance has been changed MOSPI press note 31.5.2019
from neutral to accommodative. News and websites

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