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Moody's cuts India's 2019-20 growth forecast to 5.8%
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SME Times News Bureau | 10 Oct, 2019
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.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
|
66.20
|
64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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