Moody’s lowers India’s growth forecast further

New Delhi: Sensing a weaker growth outlook that will dampen the prospects for fiscal consolidation in the country, Moody’s Investors Service on Thursday slashed its growth forecast for India for the current fiscal to 5.8 per cent from 6.2 per cent.

Earlier the global ratings agency had lowered India’s growth forecast to 6.2 per cent from 6.8 per cent in August.

With the weak consumer demand and stress in the financial sector, the country’s economic growth rate fell to a six-year low of five per cent in the April-June quarter, triggering the central bank to cut its 2019-20 growth forecast to 6.1 per cent from 6.9 per cent in its monetary policy last week.

The global rating agency also warned of a prolonged phase of softer growth in India, which could dampen prospects of fiscal consolidation by the government. It could hamper its ability to prevent a rise in the debt burden, and constrain the country’s sovereign credit profile.

“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 per cent in the fiscal year ending in March 2020 (FY19) from 6.8 per cent in fiscal 2018, and to pick up to 6.6 per cent in fiscal 2020 and around 7.0 per cent over the medium term,” Moody’s said.

The rating agency also pointed out that the slowdown is caused 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,” it added.