InvestorQ : Is it correct that Moody’s has further slashed India’s growth rate for the full year 2020 and what was the reason?
Khushi Patel made post

Is it correct that Moody’s has further slashed India’s growth rate for the full year 2020 and what was the reason?

Anjana Aiyar answered.
3 years ago

That is correct. Moody’s has slashed the growth rate in GDP for the fiscal year 2019-20 from its original estimate of 6.2% to 5.8%. There were some clear reasons given by Moody’s for the same. Here are a few key justifications that Moody’s has provided.

· One of the major reasons that Moody’s has given is the slowdown in consumption. According to Moody’s, for a consumption driven economy like India, any slowdown in consumption could have implications for demand, incomes and growth at multiple levels.

· The second reason given by Moody’s is the weak investment cycle in India. High frequency indicators like the core sector growth have been pointing towards weak investment levels. That is bad for future growth drivers for the economy.

· Moody’s has also pointed to the extent of bad loan stress in the economy. The debt crisis is far from over, according to Moody’s and some of the stress of NBFCs, realty and power could spill over to the banking system. Moody’s has also raised some red flags about the likelihood of consumer loan defaults increasing in the days to come.

· Moody’s has also pointed out to the stress on rural incomes as a reason for the growth downgrade. Rural households contribute substantially to demand due to their high propensity to consume. The low inflation in rural areas is indicative of the fact that spending stress continues to be high in these areas.

· The big trigger for Moody’s has most likely come from RBI slashing its growth forecast for 2019-20 from 6.9% to 6.1%. This came in the aftermath of the ADB and the OECD also downgrading India growth. S&P has already pegged growth at well below the 6% mark.

· There is also a sequential reason for this downgrade. India GDP grew at 5% in Q1 and is expected to grow at 5.3% in Q2. That means even to achieve 6% growth for the full year, the GDP will have to grow by nearly 7% in the last two quarters, which as of now does look a tad challenging. That was the trigger for the Moody’s downgrade of GDP growth.