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The rating agency had recently revised its sovereign rating outlook for India from stable to negative.
The rating agency had recently revised its sovereign rating outlook for India from stable to negative.

India’s weak household consumption will curb revival, says Moody’s

  • Moody’s has also lowered its GDP growth projection for India for the fiscal year ending March 2020 from 5.8% to 4.9%
  • India’s growth had decelerated to a six-and-a-half-year low of 4.5% in the Sept quarter from 5% in the preceding quarter

NEW DELHI : India’s weak household consumption will curb economic revival, which in turn will reduce the debt servicing capability of households, Moody’s Investors Service said on Monday.

India’s growth had decelerated to a six-and-a-half-year low of 4.5% in the September quarter from 5% in the preceding quarter.

Moody’s has also lowered its gross domestic product (GDP) growth projection for India for the fiscal year ending March 2020 from 5.8% to 4.9%.

The rating agency had recently revised its sovereign rating outlook for India from stable to negative.

“What was once an investment-led slowdown has now broadened into weakening consumption, driven by financial stress among rural households on the back of stagnating agricultural wage growth and constrained productivity, as well as weak job creation because of rigid land and labour laws," said Deborah Tan, one of Moody’s assistant vice-presidents and analysts.

The credit crunch among non-banking financial institutions (NBFIs), which have been major providers of retail loans in recent years, has exacerbated this slowdown.

“While the income shock to households has been unfolding over several years, it was not visible on headline growth as long as households could borrow from NBFIs. With the materialization of a credit supply shock, we now see the impact of these twin shocks on growth," said Tan.

The rating agency said the slower economic growth over the last few quarters will also reduce the debt servicing capabilities of households, which in turn will weaken the asset quality of retail loans across all segments.

“Private-sector banks have a larger exposure to retail loans and may be more at risk. However, an increase in non-performing loans (NPLs) should be gradual," the rating agency said.

Moody’s expects that government measures such as income support for farmers and low-income households, monetary policy easing, and a broad corporate tax cut to be limited in offsetting this slowdown, will stimulate domestic demand.

A modest recovery is expected for next year, supported partly by spillovers from policy stimulus, but economic growth will remain weaker than in recent years. This will have negative credit implications for Indian issuers in a range of sectors, Moody’s said.

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