S&P cuts India's growth forecast to 6.3% for FY20

S&P Global Ratings on Tuesday lowered India's Gross Domestic Products (GDP) forecast to 6.3 per cent for the current financial year from 7.1 per cent projected earlier, amid decline in private consumption. The agency, however, expects the Indian economy to recover in 2020-21 to 7 per cent.

"India's slump is deeper and more broadbased than we expected. In the March-June quarter, the economy expanded by just 5 per cent, well below potential, which we estimate to be north of 7 per cent. Most alarming has been the precipitous decline in private consumption growth that had been the engine of the economy in recent years - down to about 3 per cent in the March-June quarter," the global rating agency said in a recent report on the Asia-Pacific region.

This comes after India's GDP growth plunged for the fifth straight quarter to an over six-year low of 5 per cent in the June quarter as consumer demand and private investment slowed amid deteriorating global environment.

Earlier, the Reserve Bank of India (RBI) had slashed GDP growth estimate for the current fiscal to 6.9 per cent from previous estimate of 7 per cent, in wake of slowdown in demand and investment.

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Moody's too had cut India's GDP growth forecast for the current year to 6.2 per cent, citing that the economy was sluggish due to factors such as weak hiring, distress among rural households and tighter financial conditions.

Among others, Asian Development Bank pegged India's GDP growth at 7 per cent for the current year on the back of fiscal shortfall concerns.

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Commenting on the government's effort to revive economy through cut in corporate taxes, the agency said it would cost the exchequer 0.7 per cent of GDP, though the net impulse would be smaller, with the government eliminating some exemptions. The short-term effect on the economy would be limited until businesses felt more confident about the outlook for demand, it said. "Other fiscal support is more targeted and may lift demand in some segments of the economy - e.g., income transfers to farmers."

On the Reserve Bank of India's monetary policy, S&P said, "We expect further cuts if external conditions (US rates and oil prices) provide space. Transmission will be imperfect, however, due to long-standing balance sheet constraints among public banks and stress among non-bank lenders. The negative surprises of recent quarters will continue to weigh on private domestic demand. So while some recovery is likely, growth may remain below potential for some time."

Edited by Chitranjan Kumar