Amid an economic slowdown, Moody’s Investors Service has cut India’s gross domestic product (GDP) growth rate to 6.2 per cent for calendar year 2019 against its earlier projection of 6.8 per cent.
The rating agency scaled down India’s economic growth to 6.7 per cent for 2020, a cut of another 0.6 percentage points.
If it happens, Chinese economic growth rate would equal India’s this calendar year. However, India would again become the fastest growing large economy, at least in Asia, next financial year as the Chinese GDP growth rate would come down to 5.8 per cent.
India was among eight countries in Asia whose economic growth was slashed by Moody’s. On the other hand, the rating agency retained the growth rate of eight other economies.
The cut in growth rates for India was sharper for both the years than the other seven economies. While it blamed a weaker global economy and an uncertain operating environment for forecasting stunted Asian exports, it attributed slowing growth rates in India, Japan and the Philippines more to the domestic factors.
“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 financial conditions due to stress among non-bank financial institutions,” Moody’s said.
If India does grow on the lines of Moody’s projections, it might increasing become difficult for it to become a $5-trillion economy by 2024-25, as expected by Prime Minister Narendra Modi.
For achieving this feat, the economy needs to grow by 8 per cent from the next financial year, according to the Economic Survey. This is based on the assumption that the inflation rate stands at 4 per cent a year. If the inflation rate comes down, the economic growth rate at constant prices needs to grow faster than 8 per cent a year to achieve the prime minister’s dream.
Moody’s said “cooler business sentiment and slow flow of credit to corporate contribute to weaker sentiments in India”.
It said the Reserve Bank of India (RBI) has been most active in cutting rates in support of growth, but lingering financial sector issues may blunt the effectiveness of monetary stimulus. The RBI’s Monetary Policy Committee had cut the repo rate for the fourth consecutive time in its review meeting earlier this month. In fact, the cut was sharper at 35 basis points.
Moody's cuts India's GDP growth to 6.2% for 2019 amid economic slowdown
Moody’s also said generally healthy balance sheets and fiscal positions across the region provide space to pursue countercyclical fiscal policies, but India along with Malaysia, Mongolia, and Sri Lanka did not have that leeway.
It should be noted that India’s economy grew by just 5.8 per cent in the first quarter of 2019, the slowest rate in the past 20 quarters. Economists are divided on whether the growth rate would be lower or higher in the second quarter.
However, most economists believed that the growth would be lower than 5.8 per cent in the second quarter.
The statistics office is scheduled to release the numbers later this month.
Even if the economy grows by 5.8 per cent in the second quarter, the economy still needs to grow by 6.6 per cent in the second half to yield even 6.2 per cent growth rate for 2019, not a simple feat in the current economic conditions.
D K Srivastava, chief policy advisor at EY India, said he pegged the economic growth rate at 5.8 per cent for the second quarter of the current financial year.
“The economy would witness higher growth rate in the second half and my projections are 6.3-6.4 per cent for the entire financial year.” He said the economy may grow close to 7 per cent in the next calendar year, depending on the policy measures by the government.
The rating agency scaled down India’s economic growth to 6.7 per cent for 2020, a cut of another 0.6 percentage points.
If it happens, Chinese economic growth rate would equal India’s this calendar year. However, India would again become the fastest growing large economy, at least in Asia, next financial year as the Chinese GDP growth rate would come down to 5.8 per cent.
India was among eight countries in Asia whose economic growth was slashed by Moody’s. On the other hand, the rating agency retained the growth rate of eight other economies.
The cut in growth rates for India was sharper for both the years than the other seven economies. While it blamed a weaker global economy and an uncertain operating environment for forecasting stunted Asian exports, it attributed slowing growth rates in India, Japan and the Philippines more to the domestic factors.
“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 financial conditions due to stress among non-bank financial institutions,” Moody’s said.
If India does grow on the lines of Moody’s projections, it might increasing become difficult for it to become a $5-trillion economy by 2024-25, as expected by Prime Minister Narendra Modi.
For achieving this feat, the economy needs to grow by 8 per cent from the next financial year, according to the Economic Survey. This is based on the assumption that the inflation rate stands at 4 per cent a year. If the inflation rate comes down, the economic growth rate at constant prices needs to grow faster than 8 per cent a year to achieve the prime minister’s dream.
Moody’s said “cooler business sentiment and slow flow of credit to corporate contribute to weaker sentiments in India”.
It said the Reserve Bank of India (RBI) has been most active in cutting rates in support of growth, but lingering financial sector issues may blunt the effectiveness of monetary stimulus. The RBI’s Monetary Policy Committee had cut the repo rate for the fourth consecutive time in its review meeting earlier this month. In fact, the cut was sharper at 35 basis points.
Moody's cuts India's GDP growth to 6.2% for 2019 amid economic slowdown
Moody’s also said generally healthy balance sheets and fiscal positions across the region provide space to pursue countercyclical fiscal policies, but India along with Malaysia, Mongolia, and Sri Lanka did not have that leeway.
It should be noted that India’s economy grew by just 5.8 per cent in the first quarter of 2019, the slowest rate in the past 20 quarters. Economists are divided on whether the growth rate would be lower or higher in the second quarter.
However, most economists believed that the growth would be lower than 5.8 per cent in the second quarter.
The statistics office is scheduled to release the numbers later this month.
Even if the economy grows by 5.8 per cent in the second quarter, the economy still needs to grow by 6.6 per cent in the second half to yield even 6.2 per cent growth rate for 2019, not a simple feat in the current economic conditions.
D K Srivastava, chief policy advisor at EY India, said he pegged the economic growth rate at 5.8 per cent for the second quarter of the current financial year.
“The economy would witness higher growth rate in the second half and my projections are 6.3-6.4 per cent for the entire financial year.” He said the economy may grow close to 7 per cent in the next calendar year, depending on the policy measures by the government.
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