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Home » Economy » Moody’s cuts India’s 2019-20 growth forecast to 5.8%

Moody’s cuts India’s 2019-20 growth forecast to 5.8%

Moody's said rising unemployment, especially among the young, are likely to continue to weigh on household consumption and GDP growth.

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By IANS
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New liquidity requirement for NBFCs credit positive: Moody's

New Delhi: US rating multinational Moodys Investor Services on Thursday cut its 2019-20 growth forecast for India to 5.8 per cent, from its earlier 6.8 per cent, saying the economy was experiencing a pronounced slowdown on account of multiple, domestic and long-lasting factors.

“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, a Moody’s report said.

“We forecast real GDP growth to decline to 5.8 per cent in the fiscal year ending March 2020 (fiscal 2019) 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. Compared with only two years ago, the probability of sustained real GDP growth at or above 8 per cent has significantly diminished,” it said.

“India (Baa2 stable) is experiencing a pronounced slowdown in economic growth which we assess to be partly related to long-lasting factors. Prolonged softer growth would dampen prospects for the government’s fiscal consolidation plans and hamper its ability to prevent a rise in the debt burdens. Given India’s already weak fiscal position, this would weigh on thesovereign credit profile,” it added.

According to the American agency, India’s growth will remain weaker than in the recent past

At 5.0 per cent year on year in the April-June quarter of 2019, India’s real GDP growth has slowed markedly. The drivers of the deceleration are multiple, Moody’s said.

What was an investment-led slowdown has broadened into consumption, driven 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.

Moody’s also pointed that the prospects for fiscal consolidation look limited but rapid deterioration is also unlikely.

“With the recently announced corporate tax cuts and lower nominal GDP growth, we now expect a central government deficit of 3.7 per cent of GDP in fiscal 2019, marking a 0.4 percentage point slippage from its target,” it said.

“A prolonged period of slower nominal GDP growth not only constrains scope for fiscal consolidation, but also keeps the government debt burden higher for longer compared with our previous expectations. Based on our debt sensitivity analysis, under nominal growth of around 11 per cent, close to our baseline assumption, the debt burden will remain broadly stable at around 68 nper cent of GDP, and decline slightly toward 66 per cent by 2023.

“We continue to see 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,” it added.

The Indian economy is battling a severe demand slowdown and liquidity crunch which resulted in economic growth rate falling to a six-year low of 5 per cent in the June quarter, while growth in private consumption expenditure slumped to an 18-quarter low of 3.1 per cent.

Financial stress among rural households and weak job creation that have unfolded over the course of the last couple of years have weighed significantly on consumption. This happened at a time when the economy was adjusting to demonetisation and implementation of the GST.

Moody’s said rising unemployment, especially among the young, are likely to continue to weigh on household consumption and GDP growth.

In recent quarters, the liquidity constraints faced by non-banking finance companies, following the default by IL&FS in 2018, have exacerbated negative pressures on household budgets through a slowdown in credit growth to finance retail purchases, particularly in the housing and auto sectors.

Moody’s downward revision comes ahead of the International Monetary Fund’s growth projections due next week.

Last month, the Asian Development Bank and the OECD lowered India’s current fiscal growth forecast by 50 basis points and 1.3 percentage points, respectively, to 6.5 per cent and 5.9 per cent, respectively.

The Reserve Bank of India has also slashed the country’s growth projection for 2019-20 by 80 basis points to 6.1 per cent.

–IANS

(This story has not been edited by Newsd staff and is auto-generated from a syndicated feed.)
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