Expressing concern over India’s economic growth, Moody's Investors Service has lowered Gross Domestic Product (GDP) growth projection for the country to 4.9% from 5.8% for the fiscal year 2019-20 (FY20). It said that the nation’s weak household consumption will curb economic growth and weigh on the credit quality of Indian issuers in a range of sectors. It added that the major factors responsible for weakening economic growth were rural financial stress, low job creation and liquidity constraints.
As per the report what was once an investment-led slowdown has now broadened into weakening consumption, driven by financial stress among rural households on the back of stagnating agricultural wage growth and constrained productivity, as well as weak job creation due to rigid land and labour laws. Household consumption has been the backbone of India's growth, making up about 57% of GDP in FY19. Like other major markets, India's growth has decelerated, with GDP growth falling to 4.5% in Q3 2019 from 5.0% in Q2 2019. The report further noted that the credit crunch among non-bank financial institutions (NBFIs), the major providers of retail loans in recent years, has ‘exacerbated’ this slowdown.
Moody's expects that government measures to stimulate domestic demand - including income support for farmers and low-income households, monetary policy easing and a broad corporate tax cut - will be limited in offsetting this slowdown. Although a modest recovery is expected for next year, supported partly by spillovers from policy stimulus, economic growth will be weaker than in recent years, which will have negative credit implications for Indian issuers in a range of sectors. In automotive, weak demand and tight liquidity will constrain automakers' earnings. Moreover, slower economic growth over the last few quarters will also reduce debt servicing capabilities of households, which in turn will weaken the asset quality of retail loans across all segments.
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