24.2 C
New Delhi
Wednesday 19 February 2020

Moody’s: India’s weak domestic consumption to affect growth

Moody's said weakening economic growth were rural financial stress, low employment generation and lack of liquidity were causing a low growth

Moody’s Investors Service said on Monday that India’s weak domestic consumption would curb economic growth and in many areas would weigh on the credit quality of Indian issuers.

Moody’s slashed India’s GDP growth forecast for the fiscal year ending March 2020 from 5.8% to 4.9%.

Moody’s Investors Service said in a report that the major factors responsible for weakening economic growth were rural financial stress, low employment generation and lack of liquidity. The once investment-led recession has now transformed into dwindling consumption, driven by financial stress among rural households with farm wage growth and constrained productivity, as well as weak job creation due to stricter land and labour laws, said Moody’s assistant vice president and analyst Deborah Tan.

Domestic consumption has been the backbone of India’s growth, accounting for about 57% of GDP in FY 2018-19. Like other major markets, India’s growth has also come down, with GDP growth falling from 4.5% in 2018 to 5.0% in 2019.

The report further noted that the debt crisis has “exacerbated” this recession among non-bank financial companies (NBFC) of major providers of retail loans in recent years. Tan said, “While families have been experiencing income shock for many years, this was not visible on the headline increase as long as households could borrow from NBFIs. With the materialisation of a credit supply shock, we now see the impact of these twin shaking on growth, ”said Tan.

Moody’s hopes the government will take measures to stimulate domestic demand, including income support for farmers and low-income families, easing monetary policy and a broad corporate tax cut, to offset this recession.

While a modest recovery is expected for next year, but partly supported by spillovers from policy stimulus, economic growth will be weaker than in recent years, with negative debt implications for Indian issuers in many areas.

In the automotive, weak demand and tight liquidity will hamper vehicle manufacturers’ earnings.

In addition, slower economic growth over the past few quarters will also reduce the debt servicing capabilities of households, which in turn will undermine the quality of retail loan assets across all segments, it said.

The report noted that private sector banks had a high risk of retail loans and the risk may be high, adding that the growth in non-performing loans (NPLs) will be gradual.

Stay on top - Get daily news in your email inbox

Sirf Views

Tapas Pal, A Death No One Would Genuinely Condole

In 1980, after Bengali film superstar Uttam Kumar died, Dadar Kirti of Tarun Majumdar was released after Durga Puja. The voice...

Must India Invest In Donald Trump?

As many of his cabinet picks know, to their eternal regret and shame, his commitment lasts only as long as you are gullible

Protesters Need Economic Education, Mr Bhagwat

There is no escape from misery unless teams of economic educators convince all sections of society socialism is the cause of their distress

BJP Could Not Have Won With This Approach To Delhi

From not paying attention to the corruption-ridden MCD to aloof leaders whose houses witnessed no activity during campaigns, BJP went all wrong in the Delhi assembly election

AAP Win In Delhi Was Foregone Conclusion: 5 Reasons

The five factors that contributed to the AAP victory have been arranged in the decreasing order of relevance; the first three will remain constant for a few more Delhi elections

Related Stories

Leave a Reply

For fearless journalism

%d bloggers like this: