New Delhi: Moody’s Investors Service on Friday pared down India’s growth forecast for 2019 calendar year by 60 basis points to 6.2%, holding that moderation in business sentiment and slow flow of credit to companies have contributed to weaker investment in the country.
“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-banking financial institutions," it said.
Moody’s 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.
Earlier this month, the RBI pared its growth projection for 2019-20 to 6.9% from its June forecast of 7%, while reducing policy rates by 35 basis points. It maintained that the risks to growth are tilted towards the downside, with domestic economic activity remaining weak, while global slowdown and trade tensions have intensified.
Multiple high-frequency indicators have pointed to a sharp slowdown in demand, both in rural and urban India. The automobile sector is going through its worst phase in decades due to the prolonged slump in demand, leading to massive job losses.
Finance minister Nirmala Sitharaman has been meeting industry representatives across sectors — banking, automobile, foreign portfolio investors, micro, small and medium enterprises, industry associations and real estate developers—since last Monday. She has promised to take necessary policy-based actions “fairly quickly".
Moody’s said generally healthy balance sheets and fiscal positions across the region, with the exceptions of India, Malaysia, Mongolia and Sri Lanka, provide space to pursue counter-cyclical fiscal policies.