Moody’s slashes India growth estimate to 5.4%

Moody's slashed India's growth forecast for 2020 to 5.4% from 6.6 per cent projected earlier, on slower than expected economic recovery.

In its update on Global Macro Outlook, Moody's Investors Service said India's economy has decelerated rapidly over the last 2 years and economic recovery is likely to be 'shallow'.

"While the economy may well begin to recover in the current quarter, we expect any recovery to be slower than we had previously expected. Accordingly, we have revised our growth forecasts to 5.4% for 2020 and 5.8% for 2021, down from our previous projections of 6.6% and 6.7% respectively," Moody's said. Moody's growth projections are based on calendar year and as per its estimates,

India's GDP grew 5% in 2019.

The rating agency had in November 2019 projected economic growth in 2020 and 2021 at 6.6% and 6.7% respectively. In its latest update, Moody's said the reduction in India's growth rate reflects domestic challenges rather than external factors.

Stating that the key to stronger economic momentum would be the revival of domestic demand and bank credit growth, Moody's said the Union Budget 2020 did not contain a significant stimulus to address the demand slump.

With a weak economy and depressed credit growth reinforcing each other, Moody's said "it is difficult to envision a quick turnaround of either, even if economic deceleration may have troughed".

"As similar policies in other countries have shown, tax cuts are unlikely to translate into higher consumer and business spending when risk aversion is high," Moody's said.