Moody Cuts India's GDP Forecast For FY 20 To 4.9% From 5.8%

As India's growth has been languishing and in the September ended quarter of the current financial year it reported a growth rate of just 4.5% in comparison to the 5% figure recorded for the earlier quarter, Moody's Investors Service on December 16 reduced its India GDP forecast for FY 20 from 5.8% earlier to 4.9%.

Moody Cuts India's GDP Forecast For FY 20 To 4.9% From 5.8%

The foreign entity said sluggish household consumption will put a brake on the country's economic growth and also impact the credit quality of issuing entities in a host of sectors.
In fact, NBFCs which extended most retail loans in recent years, due to the credit crunch at their end, have worsened the current slowdown.

"What was once an investment-led slowdown has now broadened into weakening consumption, driven by financial stress among rural households on the back of stagnating agricultural wage growth and constrained productivity, as well as weak job creation due to rigid land and labour laws", said Deborah Tan, Assistant Vice President and Analyst at Moody's.

"While the income shock to households has been unfolding over several years, it was not visible on headline growth as long as households could borrow from NBFIs. With the materialization of a credit supply shock, we now see the impact of these twin shocks on growth", he added further.

Also, as the slowdown now spans last few quarters, individual's capacity to service debt will be affected which in turn will impact the asset quality of retail loans extended by banks across all segments. "Private-sector banks have a larger exposure to retail loans and may be more at risk. However, an increase in non-performing loans (NPLs) should be gradual", mentioned the report.

Moody's is of the view that some of the measures taken by the Indian government to spur domestic demand such as corporate tax rate cut, easing of monetary policy cycle with a back to back key repo rate cut to 5.15%, a 9-year low interest rate; and income support extended to low income household and farmers will work only partially in offsetting current slow rate of growth.

Further even though rate of economic growth in India is expected to gain pace from next year onwards due to spillover impact from policy stimulus, GDP is expected to be lower than what has been recorded for recent years.

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