MOODY’S CUTS INDIA FORECAST
Rating agency expects growth to pick up to 6.6% in FY21
NEW DELHI: Financial analytics firm Moody’s on Thursday slashed its fiscal year 2019-20 gross domestic product (GDP) growth forecast for India to 5.8% from 6.2% earlier, saying the economy was experiencing a pronounced slowdown.
NEWDELHI: Moody’s Investors Service on Thursday slashed its fiscal year 2019-20 gross domestic product (GDP) growth forecast for India to 5.8% from 6.2% earlier, saying the economy was experiencing a pronounced slowdown which is partly related to long-lasting factors.
The projection is lower than 6.1% that the Reserve Bank of India (RBI) had forecast last week. Moody’s 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,” Moody’s said in a report.
It expected the growth to pick up to 6.6% in FY21 and to around 7% 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% has significantly diminished,” it said.
Last month, the Asian Development Bank and the Organisation of Economic Cooperation and Development lowered FY20 growth forecast for India by 50 basis points (bps) and 1.3 percentage points to 6.5% and 5.9%, respectively.
Last week, RBI also slashed its growth projection for the economy to 6.1% from an earlier estimate of 6.9%.
Rating agency Standard and Poor’s also lowered India growth forecast to 6.3% from 7.1%.
In June, Fitch cut India’s growth forecast for the current fiscal for a second time in a row to 6.6%. It had earlier in March lowered the growth estimate for FY20 to 6.8%, from 7% projected earlier.
Moody’s said the drivers of the deceleration are multiple, mainly domestic and in part long-lasting.
“What was an investment-led slowdown has broadened into consumption, driven by financial stress among rural households and weak job creation,” it said adding a credit crunch among non-bank financial institutions (NBFIs), major providers of retail loans in recent years, has compounded the problem.
“While we expect a moderate pick up in real GDP 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 current fiscal from 6.8% in FY19, and to pick up to 6.6% in FY21 and around 7% over the medium term.”
Moody’s expected a 0.4 percentage point slippage in the fiscal deficit target of the government to 3.7% of the GDP in the current fiscal due to the corporate tax cut and lower nominal GDP growth. “A prolonged period of slower nominal GDP growth not only constrains the scope for fiscal consolidation but also keeps the government debt burden higher for longer compared with our previous expectations,” it said.
It, however, saw “low probability” of a significant and rapid deterioration in fiscal strength, India’s main credit constraint, given the resilience to financing shocks offered by the composition of government debt.
India’s real GDP growth has declined in each of the past five quarters, falling to 5% year-onyear in April-June 2019 from 8.1% in January-March 2018. “By international standards, 5% real GDP growth remains relatively high, but it marks a low rate for India. Combined with a marked decrease in inflation in recent years, this has resulted in a material decline in nominal GDP growth from typical annual rates of 11% or higher over the past decade, to around 8% in the second quarter of 2019,” it said.
MOODY’S ATTRIBUTED THE DECELERATION TO AN INVESTMENT-LED SLOWDOWN THAT HAS BROADENED INTO CONSUMPTION