Moody’s cuts India’s GDP growth forecast to 5.8% for FY202 min read . Updated: 10 Oct 2019, 11:20 PM IST
- Moody’s said a prolonged phase of softer growth in India would dampen prospects for fiscal consolidation plans
- Moody’s growth projection is the most pessimistic so far and comes ahead of IMF’s projections due next week
New Delhi: Moody’s Investors Service on Thursday lowered its 2019-20 growth forecast for India to 5.8% from 6.2% earlier, saying the economy was experiencing a pronounced slowdown partly due to long-lasting factors. The rating agency’s projection is the most pessimistic so far and comes ahead of the International Monetary Fund’s growth projections due next week.
IMF’s new managing director Kristalina Georgieva on Wednesday said the global economy is witnessing a “synchronized slowdown" and its effect is “more pronounced" in emerging markets like India, indicating that the multilateral agency may revise downward its growth forecast for India in its biannual World Economic Outlook to be issued on Tuesday.
Georgieva said growth in 2019-20 will fall to its lowest rate since the beginning of the decade due to a widespread deceleration.
“In the US and Germany, unemployment is at historic lows. In some of the largest emerging market economies, such as India and Brazil, the slowdown is even more pronounced this year," she added.
Last month, the Asian Development Bank and the Organisation of Economic Co-operation and Development lowered FY20 growth forecasts for India by 50 basis points and 1.3 percentage points to 6.5% and 5.9%, respectively.
Last week, the Reserve Bank of India also cut its growth projection for the economy by 80 basis points to 6.1% for 2019-20. Rating agency Standard & Poor’s has also pared its India growth forecast to 6.3% from 7.1% earlier.
Moody’s said a prolonged phase of softer growth in India would dampen prospects for the government’s fiscal consolidation plans and hamper its ability to prevent a rise in the debt burden, thus constraining the country’s sovereign credit profile.
“While we expect a moderate pick-up in real GDP (gross domestic product) growth and inflation over the next two years supported by monetary and fiscal stimulus, we have revised down our projections for both. We forecast real GDP growth to decline to 5.8% in the fiscal year ending in March 2020 (fiscal 2019) from 6.8% in fiscal 2018, and to pick up to 6.6% in fiscal 2020 and around 7% over the medium term. Compared with only two years ago, the probability of sustained real GDP growth at or above 8% has significantly diminished," it added.
The Indian economy is battling a severe demand slowdown and liquidity crunch which resulted in economic growth rate falling to a six-year low of 5% in the June quarter, while growth in private consumption expenditure slumped to an 18-quarter low of 3.1%. Moody’s said what began as an investment-led slowdown has broadened into a consumption slowdown, driven by financial stress among rural households and weak job creation. “A credit crunch among non-bank financial institutions, major providers of retail loans in recent years, has compounded the problem," the rating agency added.