Moody’s cuts India’s FY20 growth forecast to 5.8% : 10-10-2019

Moody’s Investors Service on Thursday cut India’s gross domestic product (GDP) growth forecast for 2019-20 to 5.8% from the earlier estimate of 6.2%. It attributed the deceleration to an investment-led slowdown that has broadened into consumption, driven by financial stress among rural households and weak job creation.

“The drivers of the deceleration are multiple, mainly domestic and in part long-lasting,” the ratings agency said in its report.

It expects growth to pick up to 6.6% in FY21 and around 7% over the medium term.

Highlighting the diminished probability of sustained real GDP growth at or above 8%, it said: “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”.

India’s economic growth slumped to a six-year low of 5% in the April-June quarter and, according to the Reserve Bank of India (RBI), is likely to be near this trough at 5.3% in the July-September quarter.
The central bank had last week cut the country’s growth forecast for FY20 to 6.1% from 6.8% estimated earlier.

Moody’s noted that prolonged softer growth would dampen prospects for the government’s fiscal consolidation plans and hamper its ability to prevent a rise in the debt burden.

With the recently announced corporate tax cuts and lower nominal GDP growth, it expects a central government deficit of 3.7% of GDP in 2019-20, marking a 0.4 percentage point slippage from its target.

Source : PTI