Moody’s: Nominal GDP growth projections in Budget ambitious

The budget expects nominal GDP growth of 10 per cent in 2020-21, followed by 12.6 per cent and 12.8 per cent in FY2022 and 2023. But, Moody’s saw GDP growth rising to around 8.7 per cent in the next financial year beginning April 1 from about 7.5 per cent in the current fiscal.

Stating that growth outlook will remain weak, it has put real GDP growth during the current fiscal ending March 31 at 4.9 per cent, slightly below the government’s forecast of 5 per cent. For the next fiscal, it estimated real GDP growth of 5.5 per cent, lower than 6-6.5 per cent projected by the government’s Economic Survey.

“Growth has remained relatively weak as a prolonged deleveraging cycle and ongoing stress among non-banking financial institutions (NBFIs), which has constrained the financial system’s overall provision of credit, weigh on consumption and investment,” it said in a detailed commentary on the Budget. For the next 2020-21 fiscal, it lowered real GDP growth forecasts to 5.5 per cent from 6.3 per cent previous estimate. And for the following fiscal, it put the real GDP growth at 6 per cent from 6.7 per cent projected earlier.

“The significant slowdown in financial sector credit growth from NBFI liquidity constraints and asset quality issues among public sector banks has exacerbated prolonged weakness in private investment and a material decline in consumption, due in part to financial stress among rural households and weak job creation,” Moody’s said.

The nominal GDP growth, it said, has also declined significantly. Following 11.2 per cent expansion in 2018-19, the Centre had forecast 12 per cent nominal GDP growth in its July 2019 budget for the current fiscal.

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The government has started implementing Budget announcements with Department of Financial Services (DFS) conveying the approval of the Centre to DICGC for raising the insurance cover on saving deposits to Rs 5 lakh per depositor, Finance Secretary Rajiv Kumar said on Tuesday.

The move will help boost confidence of people in the banking system which has been shaken after a scam last year in Punjab and Maharashtra Cooperative Bank (PMC Bank) which affected lakhs of customers.

At present, bank depositors get an insurance cover of Rs 1 lakh on their amount by the Deposit Insurance and Credit Guarantee Corporation (DICGC) if a bank fails.

“Work has begun on Budget announcement. Department of Financial Services has given approval for raising deposit insurance cover from Rs 1 lakh to Rs 5 lakh. The change is being done after a gap of 27 years,” Kumar said in a tweet.

Accordingly, he said, the banks will pay a premium of 12 paise against 10 paise per Rs 100 deposited.

Finance Minister Nirmala Sitharaman in her Budget speech on Saturday said a robust mechanism is in place to monitor the health of all scheduled commercial banks and that depositors’ money is safe.