Moody’s cuts India’s 2020 growth forecast to 5.4pc

18 February, 2020 12:00 AM printer

NEW DELHI: Global rating agency Moody’s said on Monday that India’s economic recovery is likely to be shallow and expand at a lower pace of 5.4 per cent in Calendar 2020 than the earlier estimate of 6.6 per cent.

In a review of the global economy to asses likely to impact on Coronavirus outbreak, Moody’s said it (virus and its spread) has diminished optimism about prospects of an incipient stabilisation of global growth this year, report agencies.

With the virus continuing to spread, it is still too early to make a final assessment of the impact on China (A1 stable) and the global economy.

India’s economy has decelerated rapidly over the last two years. the real gross domestic product grew at a meagre 4.5 per cent the third quarter of calendar Q3 2019. Improvements in the latest high-frequency indicators such as PMI data suggest that the economy may have stabilised.

Moody’s said, “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, the revised forecasts for growth of the Indian economy are 5.8 per cent for 2021 (as against previous projection of 6.7 per cent for 2021).

A key to stronger economic momentum would be the revival of domestic demand, both rural and urban, in India. But equally important is the resumption of credit growth in the economy.

As data from the Reserve Bank of India (RBI) shows, credit impulse has deteriorated throughout the last year due to drying up of lending from non-bank financial institutions as well as from banks.

Banks have been both unwilling to lend and to lower lending rates despite successive interest rate cuts by the central bank. As a result, non-food bank credit growth decelerated to 7 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.