Fitch latest to slash India’s GDP forecast

THE RATINGS AGENCY SLASHED INDIA’S GDP GROWTH FORECAST IN THE CURRENT FISCAL TO 5.5% FROM AN EARLIER FORECAST OF 6.6%

NEW DELHI: Fitch Ratings on Thursday slashed India’s gross domestic product (GDP) growth forecast in the current fiscal to 5.5%, saying a large credit squeeze emanating from shadow banks has pushed economic growth to a six-year low.

Fitch, which had in June this year put India’s GDP growth at 6.6% for the fiscal year that began in April 2019, said the recent government measures to boost economy, including a cut in corporate tax rates, will gradually nudge growth.

The projection is lower than 6.1% that the Reserve Bank of India (RBI) had forecast in early October.

GDP expansion will pick up to 6.2% in the next financial year (FY21) and to 6.7% in the year after, Fitch said.

The Indian economy decelerated for the fifth consecutive quarter in April-June, with GDP expanding by 5%, down from 8% recorded a year earlier. This is the lowest growth outturn since 2013.

“Weakness has been fairly broad-based, with both domestic spending and external demand losing momentum,” Fitch said. “The Indian economy is being held back by a large squeeze in credit availability emanating from non-bank financial companies (NBFCs).”

Earlier this month, Moody’s Investors Service slashed its FY20 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 longlasting factors.

Moody’s had attributed the deceleration to an investment-led slowdown that has broadened into consumption, driven by financial stress among rural households and weak job creation, and said the growth will pick up to 6.6% in FY21 and to around 7% over the medium-term.

Last month, the Asian Development Bank and the Organisation of Economic Cooperation and Development lowered FY20 growth forecast for India by 50 basis points and 1.3 percentage points to 6.5% and 5.9%, respectively.

Rating agency Standard & Poor’s has also lowered its India growth forecast to 6.3% from 7.1%.

On October 15, the International Monetary Fund (IMF) slashed India’s GDP growth rate projections to 6.1% from 7% in July, while World Bank had its estimate for India’s GDP growth for FY20 to 6%.

Fitch, in a note on Indian economy, said that assuming the sluggish pace of lending is maintained throughout the year, total new lending will amount to only 6.6% of the GDP in the fiscal year 20192020, down from 9.5% in the previous fiscal year.

Fitch believes that the severe credit squeeze has taken a heavy toll on the Indian economy.