Mumbai: The economy will grow up to 7.5% in FY19, supported by domestic consumption, policy push, and synchronised global growth, says a Crisil report.
In the current fiscal, GDP growth is expected to be 6.5%. The Economic Survey 2018 has pegged FY19 growth at 7-7.5%.
“After two sub-par years, interjected by demonetisation and rollout of goods and services tax (GST), growth is seen recuperating to a respectable 7.5% next fiscal,” Crisil said in a report today.
The key engines supporting the upturn are largely domestic and policy-driven, though the synchronous upturn in global growth will provide some tailwind. The upturn in growth will be aided partly by the low-base effect.
The report has identified four thrust vectors- resolution of stressed assets in banking, rural rejuvenation, relentless implementation of reforms and rising global growth, that will determine the extent of pick-up and its sustainability.
It said the asset quality issues plaguing public sector banks – with gross non-performing assets touching 10.5%, has reach o a point that no meaningful and sustainable economic recovery is plausible without beginning of a resolution process.
The transparent and time-bound process driven by National Company Law Tribunal (NCLT) offers hope.
While haircuts are likely to be deep, the scale and timeframe of recovery will mark a watershed for the country’s banking system.
With improving the economy and turning credit cycle, fresh slippages will moderate and NPAs will likely peak at 11% by March 2019, says the report.
It said the focus on demand and job creation through spending on rural and labour-intensive infrastructure space is likely to support growth next fiscal, and push demand in the consumer sectors.
The rating agency said the sustainability of recovery also depends on effective implementation of key reforms such as GST, the Real Estate (Regulation and Development) Act of 2016, and the Uday rolled out in the last few years.
“Each of these has the potential to be transformative in the long run, but near-term efficacy and impact, in our view, is mixed at best,” the report said.
It said global growth is gathering pace, and the momentum in global trade is expected to continue in 2018 as well.
It should buoy exports, but the pick-up is unlikely to be material, given poor local infrastructure, higher cost of capital and labour productivity issues, it said.
The rating agency said the key risks to its forecasts stem from an inability to resolve GST-related issues quickly and fiscal stress leading to a cut in capex by the government.