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Moody’s Cuts 2019 Forecast to 5.6%
The Economic Times  |  November 15, 2019

Our Bureau New Delhi

Moody’s has slashed its growth forecast for India for this calendar year to 5.6% from 6.2% it estimated earlier, citing “widespread weakness in consumption demand”.

 

“India’s economic slowdown is lasting longer than previously expected,” the international rating agency said in its Global Macro Outlook 2020-21 on Thursday. Economic activity is likely to pick up in 2020 and 2021 to 6.6% and 6.7%, respectively, but the pace will remain slower than in 2018 when the country’s real GDP grew 7.4%, it said.

 

“India's economic growth has decelerated since mid-2018, with real GDP growth slipping from nearly 8% to 5% in the second quarter of 2019 and joblessness rising,” Moody’s said. Investment activity was muted well before that, but the ecodown is that consumption demand has cooled notably.”

 

The agency had on October 10 slashed India’s economic growth forecast for 2019-20 fiscal to 5.8% from an earlier estimate of 6.2%. Last week, it downgraded India’s outlook to negative from stable. In October, Moody’s had attributed the deceleration to an investment-led slowdown that has broadened into consumption, driven by financial stress among rural households and weak job creation.

 

The government has undertaken a number of measures to arrest the growth slowdown. In September, it cut corporate tax rate to 22% from 30%. It also lowered the tax rate for new manufacturing companies to 15% to attract new foreign direct investments. The tax cuts brought India in line with rates on a par with other Asian countries.

 

The government's other initiatives aimed at reviving the economy include bank recapitalisation, mergers of 10 public sector banks into four, support for the auto sector, plans for infrastructure spending, and tax benefits for startups.

 

“However, none of these measures directly address the widespread weakness in consumption demand, which has been the chief driver of the economy,” Moody’s has said.