Global credit rating agency, Moody's on Friday lowered India's GDP growth forecast to 6.2 per cent from 6.8 per cent for running calendar year. The forecast is significant with the fact that Moody's has slashed India's growth projection by 60 basis points (100 basis points equal 1 percentage point).
The rating agency has underlined that the economy has remained sluggish due to multiple factors including weak hiring, distress among rural households and tighter financial conditions. Similarly, the projection for the year 2020 has also been lowered by 60 basis points to 6.7 per cent. On Friday, Moody's announced the revision in its forecast for 16 Asian economies. Moody's said that despite stable private and public consumption in the Asian region, GDP growth has hampered by weaker trade and investment.
In a statement, it said, "While not heavily exposed to external pressures, India's economy remains sluggish on account of a combination of factors, including weak hiring, financial distress among rural households, and tighter financing conditions due to stress among non-bank financial institutions." Moody's further added that domestic factors have had a greater effect on India's growth. The almost stagnant flow of credit and moderation in business sentiment have contributed to tepid investment in the country. "Cooler business sentiment and slow flow of credit to corporates contribute to weaker investment in India," it further added.
As per Moody's, the Indian economy has grown by 6.9 per cent in 2017 and 7.4 per cent in 2018. The current year has already witnessed sluggish growth since the beginning. GDP growth rate recorded in the first quarter (January-March) of this calendar year was lowest in five years at 5.8 per cent. Further, the government will announce the numbers for the April-June quarter and it is expected to be on the lower side on the backdrop of Lok Sabha election.
Moody's took note of Reserve Bank of India's (RBI) effort in infusing growth in the economy. "Reserve Bank of India has been most active in cutting rates in support of growth, but lingering financial sector issues may blunt the effectiveness of the monetary stimulus," it added.
Earlier this month even, the central bank marginally lowered growth forecast for the current financial year from 7 per cent to 6.9 per cent because of demand-side shock and slowed investment. Moreover, Moody's has also expected inflation to jump to 3.7 per cent in year 2019 and 4.5 per cent in 2020 next from 2.9 per cent in 2018.