INDIA GDP ANALYSIS BY MOODY'S

India GDP Analysis by Moody's

Moody's Corporation, often referred to as Moody's, which is an American business and financial services company. It’s Investors Service on Thursday cut India’s gross domestic product (GDP) growth forecast for 2019-20 to 5.8% from the earlier estimate of 6.2%. It believes that something led to an investment-led slowdown that has made wide consumption, driven by financial stress among rural households and weak job creation. It expects growth to pick up to 6.6% in FY21 (fiscal year) and around 7% over the medium term. India’s economic growth slumped to a six-year low of 5% in the April-June quarter and, according to the Reserve Bank of India (RBI), is likely to be near this trough at 5.3% in the July-September quarter.

The central bank had last week cut the country’s growth forecast for FY20 to 6.1% from 6.8% estimated earlier.

With the recently announced corporate tax cuts and lower nominal GDP growth, it expects a central government deficit of 3.7% of GDP in 2019-20, marking a 0.4 percentage point slippage from its target. Moody’s noted that softer growth for a long time would make prospects less strong for the government’s fiscal consolidation plans and makes its ability difficult to prevent a rise in the debt burden. 

Compared with only two years ago, the probability of sustained GDP growth at or above 8 percent has significantly diminished. Moody’s forecast Asia’s third-largest economy would grow 6.6 percent in fiscal year 2020-21 starting next April. Last month, the Asian Development Bank and the Organisation of Economic Cooperation and Development lowered 2019-20 growth forecast for India by 50 basis points and 1.3 percentage points to 6.5 per cent and 5.9 per cent, respectively.

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 As a result, the general government deficit, which at about 6.4 per cent in fiscal 2018 is already much larger than those of Baa-rated peers (median of 2.5 per cent), is likely to remain wider than Moody's previously expected, it added.

The agency expects the government to run a fiscal deficit equivalent to 3.7 per cent of gross domestic product this fiscal year, compared with the government's target of 3.3 per cent, following New Delhi's decision to cut the corporate tax rate, which will cost about Rs. 1.5 lakh crore in tax revenues

It also said that a long period of weak growth will hamper the government's fiscal consolidation plans. It also said, 

"A prolonged period of slower nominal GDP growth 

not only constrains scope for fiscal consolidation, but also keeps the government debt burden higher for longer compared".

BY Gaurav Singh