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MOSL: ECOSCOPE-4QCY19 - India’s Quarterly Economic Outlook; Monetary easing nearing its end

ECOSCOPE: 4QCY19 - India’s Quarterly Economic Outlook; Monetary easing nearing its end

 

• Compared to our , we have revised down our FY20 growth forecast from earlier 6.5% to 5.7%. We have also lowered our inflation forecast from 4.1% to 3.9% and reduced our current account deficit (CAD) forecast to 1.8% of GDP. Indian Rupee (INR) is also expected to weaken more against the US Dollar (USD) this year.
• Our in-house economic activity index (EAI) also suggests that while real GDP growth has bottomed in 1QFY20, it is tracking 5.7-5.8% for 2QFY20. Further, an uptick in food prices is expected to drive headline inflation higher in 2HFY20 but subdued oil prices and weak domestic growth is likely to keep CAD contained.
• All these factors have allowed the Reserve Bank of India (RBI) to frontload monetary easing, which, we believe is largely over. Further, although the recent corporate tax reform is not expected to lead to significant revenue losses for the Central government, the weak economy will lead to tax shortfall, which will only be partly offset by higher-than-expected non-tax receipts. Accordingly, there is negligible fiscal space to stimulate the economy.