Fitch Ratings has slashed India’s GDP growth forecast to 7.2% for 2018-19, from 7.8% projected in September, citing higher financing cost and reduced credit availability.

According to Niti Aayog vice chairman Rajiv Kumar, the focus of the government in 2019 will be to expedite reforms with a view to accelerate growth. “India will grow at around 7.8% in the next calendar year and investment cycle that has already started picking-up will gather further strength and we will see more private investments," Kumar said.

Experts, however, expect that moderating growth can force the government to spend more before 2019 Lok Sabha elections and that could lead to fiscal pressures.

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Global factors such as sudden rise in crude oil prices (which are now easing), strengthening US dollar, slowing growth in the wake of US-China trade war and the US Federal Reserve hiking interest rate for the fourth time in a year took their toll on the Indian economy.

The banking sector ruled the headlines in 2018. The year opened with India’s biggest banking scam coming to light. On 14 February, state-owned Punjab National Bank said it had detected a ₹ 11,400 crore scam where billionaire-jeweller Nirav Modi allegedly got fraudulent letters of undertaking (LoUs) from the Brady House branch in Mumbai to secure overseas credit from other Indian lenders. The case has gathered political traction, with the government making little progress in bringing back the absconding accused.

The year ended with a rare face-off between the Reserve Bank of India (RBI) and the central government, culminating in central bank governor Urjit Patel’s resignation in December.

The main trigger was government’s demand to relax restrictions on weak public-sector banks that slowed credit growth. For the first time, the government threatened to use its special powers under Section 7 of the Reserve Bank of India Act, 1934. The cycle of events at the central bank brought to the fore concerns about RBI autonomy.

The RBI-Government tussle sent shock waves through industry and policy circles alike. The country’s leading infrastructure finance company IL&FS defaulted on payments to lenders. It triggered panic among a large number of investors, banks and mutual funds associated with the company.

The IL&FS defaults were even being seen as India’s Lehman Brothers moment that had triggered the global financial crisis in 2008. The government now wants RBI to provide relief to non-banking finance companies impacted by the IL&FS defaults.

However, the economy witnessed a big positive development: the progress made under Insolvency and Bankruptcy Code. Tasked with helping recover unpaid corporate loans, the National Company Law Tribunal (NCLT) has helped resolve insolvency and bankruptcy proceedings involving more than ₹ 60,000 crore (during Apirl-September 2018-19), and the kitty is expected to swell beyond ₹ 1 trillion in 2019 with several big-ticket default cases pending.

A rapidly depreciating rupee and steeply rising petrol prices played havoc with India’s current account deficit (CAD). It widened to 2.9% of the GDP in the second quarter of the fiscal compared to 1.1% in the year-ago period, mainly due to a large trade deficit.

“The widening of the current account deficit amid tighter global financing conditions should put downward pressure on the currency, and we forecast the INR to weaken to 75 against the dollar by end-2019," said rating agency Fitch in a report.

A good news for the economy was India’s improved ranking on the World Bank’s “ease of doing business" report for the second straight year, jumping 23 places to the 77th position on the back of reforms related to insolvency, taxation and other areas.

Collection of the goods and services tax (GST) crossed the ₹ 1 trillion mark in October, after a gap of five months, but again slipped to ₹ 97,637 crore in November. Yet, it was higher than the average monthly collection in the year. Steady increase in average GST collection raised hopes of monthly collection to remain above ₹ 1 trillion in 2019.

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Inflation has remained well below forecasts by RBI, which targets to keep the rate of price rise at 4% in the medium term. During the April-October period, industrial output grew 5.6% as compared to 2.5% in the same period of the previous fiscal. In October, it stood at a 11-month high of 8.1%.

On inflation, Dun & Bradstreet in a report said: “Going forward, there are concerns over fiscal slippage due to likely expenditure on pre-poll sops before the Lok Sabha elections next year. The Congress party’s promise of universal farm loan waiver, if it comes to power is likely to force the hand of the BJP government, which has so far stuck to fiscal prudence."

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Having witnessed controversy over host of issues like demonetisation, GST implementation and the government’s handling of banking sector woes, the year also witnessed political slugfest over revised GDP data, which showed that growth during the previous Congress-led UPA’s regime was less than what was estimated earlier.

Recalibrating data of past years, using 2011-12 as the base year instead of 2004-05, the Central Statistics Office (CSO) lowered the country’s economic growth rate during the previous Congress-led UPA’s regime.

Economists, including former chief economic adviser Arvind Subramanian, had questioned the involvement of the NITI Aayog in release of GDP back series data and had also called for review by experts to clear doubts over the data.

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