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Indian economy needs to fire on all cylinders if it wants to achieve a decent GDP growth rate in coming years, a top India Ratings official said.
“If India needs to achieve a growth rate of 8.5-9 per cent, then all the factors should grow simultaneously.
Around 60 per cent of GDP comes from private final consumption expenditure,” said Sunil Kumar Sinha, Director (Public Finance) and Principal Economist, India Ratings.
Personal consumption expenditure and government final consumption expenditure (GFCE), according to Sinha, are looking fine.
For the growth engine to rev up, gross fixed capital formation or investment as well as exports need to pick up pace, he observed.
GDP is a combination of private final consumption expenditure (PFCE), GFCE, gross fixed capital formation and net exports (exports-imports).
The rating agency, however, has revised down its FY19 GDP growth to 7.2 per cent, from 7.4 per cent projected earlier.
It cited a higher inflation estimate due to elevated crude prices and the government's decision to fix a higher MSP behind the downward revision.
Private final consumption expenditure on an average has grown at 7 per cent per annum during FY14-18 compared with an average of 7.5 per cent during FY04-08, considered as one of the best periods for Indian economy, Ind-Ra data showed.
The rating firm expects private final consumption expenditure to grow 7.6 per cent in FY19 as against earlier forecast of 7.8 per cent.
With the impact of demonetisation waning and cash coming back to the system, rural consumption is expected to be robust on the back of a favourable monsoon.
GFCE has grown at 7.6 per cent per annum on an average during FY14-18 whereas the figure stood at 5.8 per cent during FY04-08.
Gross fixed capital formation slowed down sharply to 5.4 per cent during FY14-18 against 16.2 per cent during FY04-08.
India Ratings projected that gross fixed capital formation is unlikely to significantly improve over FY18.
The agency is of the view that government capex alone will be insufficient to revive the capex cycle as its share in the total capex of the economy stood at a mere 11.1 per cent during FY12-17.
On the other hand, the share of private corporation was a princely 40.90 per cent.
As private corporations in combination with the household sector command 77.5 per cent of the total investment in the economy, their capex revival is a must for a broad-based recovery in the investment cycle, Ind-Ra stated further.
Exports grew below 1 per cent during FY14-18 against 25.40 per cent during FY04-08.
Ind-Ra sees rising trade protectionism, a depreciating rupee and no visible improvement in banking NPAs as some of the other headwinds for the economy.
