Moody’s Cuts India’s 2020 Growth Projection To 5.4 Per Cent

Home »  Finance »  Moody’s Cuts India’s 2020 Growth Projection To 5.4 Per Cent
Moody’s Cuts India’s 2020 Growth Projection To 5.4 Per Cent
Aparajita Gupta - 17 February 2020

New Delhi, February 17: Keeping in view the economic slowdown and its slow recovery. Moody’s Investors Service on Monday has slashed India’s growth forecast for 2020 to 5.4 per cent from 6.6 per cent as projected earlier.

India’s economy has decelerated rapidly over the last two years. Real GDP grew at a meager 4.5 per cent in Q3 2019.

“Improvements in the latest high frequency indicators such as PMI data suggest that the economy may have stabilised. 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 per cent for 2020 and 5.8 per cent for 2021, down from our previous projections of 6.6 per cent and 6.7 per cent, respectively,” stated the credit rating agency in its latest report.

A key to stronger economic momentum would be the revival of domestic demand, both rural and urban. But equally important is the resumption of credit growth in the economy. As data from the Reserve Bank of India shows, credit impulse in the economy has deteriorated throughout the last year as a result of the drying up of lending from non-bank financial institutions as well as from banks.

Banks have been both unwilling to lend and lower lending rates despite successive interest rate cuts by the central bank. As a result, non-food bank credit growth decelerated to seven per cent in nominal terms in December 2019, down sharply from 12.8 per cent a year earlier. The deterioration in credit growth to the commercial sector is particularly stark. Nominal credit to industry grew at only 1.6 per cent year-on-year in December 2019, while credit to the services sector registered 6.2 per cent nominal growth, and credit to agriculture and related activities grew 5.3 per cent.

With a weak economy and depressed credit growth reinforcing each other, it is difficult to envision a quick turnaround of either, even if economic deceleration may have troughed. On the fiscal front, the Union Budget 2020 did not contain a significant stimulus to address the demand slump. 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.

“We expect additional easing by the RBI. However, if the recent rise in CPI inflation, mainly as a result of higher food prices, is seen to have second-round effects, this would make it more challenging for the central bank to cut interest rates further,” the report stated.

IIP Growth Contracts 0.3% In December 2019
Choose The Best Of Both While Planning A Financial Life

Related Articles