カントリーリスクレポート - インド
India Country Risk Report Q1 2020
|発行||Fitch Solutions, Inc.||商品コード||203079|
|出版日||ページ情報||英文 91 Pages
India's real GDP growth slumped even further in Q1 of FY2019/20 (April-March) to 5.0% y-o-y, from 5.8% y-o-y in Q4 FY2018/19, due mainly to a sharp slowdown in private consumption growth. While we continue to forecast growth to pick up over the coming quarters, supported by reforms, fiscal stimulus and favourable base effects, we now expect the rebound to be weaker than before, given a subdued external and private consumption outlook. Therefore, we are revising our forecast for growth to come in at 6.4% in FY2019/20, down from 6.8% previously.
The Reserve Bank of India (RBI) cut its benchmark repurchase and reverse repurchase rates by 35 basis points (bps) at its August 7 monetary policy meeting to 5.40% and 5.15% respectively. Given that the extent of monetary easing in the 2019 year-to-date still appears to be insufficient in lifting economic activity, we expect the RBI to cut its policy interest rates by a further 40bps by the end of March 2020. Subdued inflationary pressures, combined with an urgent need to provide further economic stimulus to support economic activity inform our view for further easing. Risks to our forecast are still weighted to the downside, as a poor monetary policy transmission mechanism in India could necessitate steeper interest rate cuts than we currently expect. We have revised our forecast for the Indian central government fiscal deficit to 3.4%, from 3.6% previously, which continues to reflect our view for the government to miss its revised 3.3% fiscal deficit target for FY2019/20. We continue to believe that the government's revenue projections are too rosy, and this will likely see the government miss its goal of reducing its fiscal deficit to 3.0% by FY2020/21. The expenditure allocation of the full Union Budget remains consistent with the interim budget. Efforts to introduce additional stimulus measures to support economic growth over and above the interim budget appear to be lacking in the full budget.
We expect the Indian rupee to remain on a broad depreciatory path against the US dollar. Over the short term, a narrowing of real interest differentials with the US and a worsening terms of trade would put pressure on the rupee, while the central bank's focus on growth support would likely spur foreign exchange market interventions to limit rupee strength. Over the longer term, rupee overvaluation, higher inflation in India relative to the US, and periods of risk-off sentiment should exert downside pressure on the currency, although a possible further dovish turn by the US Federal Reserve could put a floor to this weakness. Accordingly, we maintain our forecast for the rupee to average INR70.50/USD in 2019, but are revising our forecast for the rupee to average INR74.00/USD in 2020, from INR72.00/USD previously.
We at Fitch Solutions believe that clashes between India and Pakistan could intensify over the coming months due to India's revocation of Kashmir's special status, although the conflict is likely to be contained within Kashmir. While not our core view, we see rising risk of military conflict between India and Pakistan, given the likelihood of an extended Indian military presence in Kashmir, and Pakistan's interest in challenging India's control of the region. China, an interested third party, is unlikely to materially intervene in the conflict as long as the Line of Actual Control separating it and India is respected. In light of ongoing elevated tensions between the two nations, we are revising our Short-Term Political Risk Index scores for India and Pakistan to 67.6 and 47.1 respectively out of 100, from 71.0 and 47.5 previously.
Downside Risks To Growth: We expect slowing global economic growth to pose headwinds to India's Make in India campaign through slower foreign direct invest- ments growth in the manufacturing sector. Additionally, there is also the risk of banking sector asset quality worsening following the central bank's revision to its stress asset resolution framework in June 2019, which appears to show a softer stance towards the resolution of non-performing loans in the sector. A high load of non-performing loans on bank balance sheets will reduce monetary policy transmission as banks, with a high level of risk on their books, would be unwilling to lower their lending interest rates in line with policy interest rates. Poor monetary policy transmission could see growth underperform our expectations.