A day after the IMF sounded caution on economic slowdown in India, Moody’s Investor Services on Thursday slashed India's GDP growth forecast for 2019-20 from 6.8 per cent to 5.8 per cent. Moody's reasoned that the economy was experiencing a pronounced slowdown which is partly related to long-lasting factors, including an investment-led slowdown that has broadened into consumption, driven by financial stress among rural households and weak job creation.
“What was an investment-led slowdown has broadened into consumption, driven by financial stress among rural households and weak job creation. A credit crunch among non-bank financial institutions (NBFIs), major providers of retail loans in recent years, has compounded the problem,” the Economic Times cited from Moody's report.
This is Moody's most pessimistic projection so far for India and comes ahead of International Monetary Fund’s growth projections due next week. However, Moody's expects growth to pick up to 6.6 per cent in FY21 and around 7 per cent over the medium term. "Although we expect a moderate pick-up in real GDP growth and inflation in the next two years, we have revised down our projections for both. Compared with two years ago, the probability of sustained real GDP growth at or above 8 per cent has significantly diminished," it said.
Moody's revised numbers come a week after the Reserve Bank of India revised its projection to 6.1 per cent from an earlier estimate of 6.9 per cent during its monetary policy committee meeting.
Last month, the Asian Development Bank and the Organisation of Economic Cooperation and Development lowered 2019-20 growth forecast for India by 50 basis points and 1.3 percentage points to 6.5 per cent and 5.9 per cent, respectively.
Rating agency Standard & Poor's has also lowered its India growth forecast to 6.3 per cent from 7.1 per cent. In June, Fitch cut India's growth forecast for the current fiscal for a second time in a row to 6.6 per cent. It had earlier in March lowered the growth estimate for 2019-20 to 6.8 per cent, from 7 per cent projected earlier, on weak momentum of the economy.
(With PTI inputs)
