New Delhi: After downgrading the rating outlook on India to negative from stable last week, Moody’s Investors Service on Thursday cut India’s GDP growth forecast for the current financial year to 5.6 per cent from 5.8 per cent estimated earlier, saying the economic slowdown is lasting longer than previously expected.
Citing that the government steps do not address the widespread weakness in consumption demand in the country, Moody’s said, “We have revised down our growth forecast for India. We now forecast slower real GDP growth of 5.6 per cent in 2019, from 7.4 per cent in 2018.”
The rating agency’s move comes in the backdrop of other rating agencies, brokerages and banks cutting the gross domestic product (GDP) growth forecast between 6.2 and 4.9 per cent for this financial year (see table). Japanese brokerage Nomura estimated the lowest GDP growth of 4.9 per cent for the year ending March 2020, while domestic rating agency Icra projected the highest growth rate at 6.2 per cent.
Moody’s had on October 10 cut India’s economic growth forecast for 2019-20 fiscal to 5.8 per cent from an earlier estimate of 6.2 per cent. The rating agency then attributed the trend of deceleration to an investment-led slowdown due to low consumption, financial stress among rural households and weak job creation.
The country’s economy grew at the weakest pace since 2013 at 5 per cent year-on-year between April and June. Ahead of the second quarter GDP data that will be released later this month, the ongoing slowdown trend forced the government to take many healing measures like slashing corporate taxes. The RBI took a slew of interest rate cuts.
As far as the government’s measures are concerned, the Finance Ministry took a slew of initiatives to boost growth. They include bank recapitalisation, the merger of 10 public sector banks into four, support for the auto sector, plans for infrastructure spending, tax benefits for startups etc. “However, none of these measures directly address the widespread weakness in consumption demand, which has been the chief driver of the economy,” Moody’s said.