A worker operates a lathe
A worker operates a lathe as he makes spare parts of agricultural machines at a workshop in Kolkata, on July 4, 2019. Image Credit: REUTERS

New Delhi (Bloomberg): India expects economic growth to rebound from a five-year low without sacrificing budget goals, as it pins hopes on political stability to revive demand and investments.

Real gross domestic product growth for the fiscal year started April 1 is projected at 7 per cent, the Finance Ministry said in its annual Economic Survey report. The upside and downside risks to growth are evenly balanced, with monsoon rainfall seen tipping the scales, it said.

“The political stability in the country should push the animal spirits of the economy, while the higher capacity utilisation and uptick in business expectations should increase investment activity,” the Finance Ministry said. The growth push wouldn’t come at the cost of undermining fiscal deficit goals, Krishnamurthy Subramanian, the report’s author and chief economic adviser, said.

Indian Chief Economic Advisor K.V. Subramanianin
Indian Chief Economic Advisor K.V. Subramanianin addresses a press conference on the Indian government report on the state of economy in New Delhi, on Thursday, July 4, 2019. Image Credit: AP

While the 7 per cent forecast, identical to the Reserve Bank of India’s projection, marks an improvement from the 6.8 per cent expansion last year, Subramanian’s decisive statement on sticking to budget goals may surprise those expecting a fiscal stimulus from the government’s budget on Friday. A gloomy global outlook spawned by US-China trade tensions has already prompted the central bank to do its bit to support the economy, by cutting interest rates three times this year.

“We will be sticking to the fiscal deficit path,” Subramanian said. “If investment, especially private investment, has to get fostered crowding out can’t happen.”

The RBI’s easy monetary policy is expected to lower real lending rates, helping boost credit growth and revive investment in the coming months, according to the report on the state of the economy. Further, the narrowing in bad-loans ratio is seen helping boost the capital expenditure cycle.

Indian Finance Minister Nirmala Sitharaman
Indian Finance Minister Nirmala Sitharaman, seated right, signs the Indian federal budget after giving final touches, as Indian junior Finance Minister Anurag Thakur, seated left, watches along with finance budget team at her office in New Delhi, on Thursday, July 4, 2019. Image Credit: AP

Oil prices staying well below their 2018 peak is also likely to spur consumption, which accounts for about 60 per cent of gross domestic product.

A rebound in consumption is tied to a recovery in agricultural growth, which in turn depends on rainfall. The other downside risks include weaker exports growth and a spillover of the stress in shadow banking sector to this year.

The southwest monsoon, which waters more than half of India’s farmland, has been below average after a delayed start to the season. As much as 69 per cent of the country got deficient rainfall during June 1-July 2 period, according to the weather office.

“Some regions are expected to receive less than normal rains,” the finance ministry said, underlining the risks. “On balance, the prospects of the economy should improve.”