Font Size

- Aa +

Tue 1 Oct 2019 03:53 PM

Font Size

- Aa +

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

Earlier ADB has slashed its projection for India's GDP growth to 6.5% from its earliest estimate of 7.2%

S&P cuts India's growth forecast to 6.3%
Announcing its new growth outlook for India on Tuesday, S&P said it expected a “decent, albeit unspectacular" recovery in 2020-21 to 7 percent.

S&P Global Ratings has slashed India’s growth projection for FY 2020 to 6.3 percent from 7.1 percent it estimated earlier, close on the heels of the Asian Development Bank (ADB) sharply lowering its projection for India’s GDP growth this fiscal to 6.5 percent.

Announcing its new growth outlook for India on Tuesday, S&P said it expected a “decent, albeit unspectacular" recovery in 2020-21 to 7 percent.

“India's slump is deeper and more broad-based than we expected. In the March-June quarter, the economy expanded by just 5 percent, well below potential, which we estimate to be north of 7 percent,” S&P Global Ratings said in its quarterly report on the Asia-Pacific region.

“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 percent in the March-June quarter," the rating agency added.

​Last week, the Asian Development Bank (ADB) in its Asian Development Outlook (ADO) Update for 2019 has sharply lowered India's growth forecast from 7.2 per cent to 6.5 per cent for the current fiscal, though has it indicated that the country will grow faster than China.

S&P also expect only limited short-term impact of the recent Indian government’s measures such as deep cut in corporate tax in reviving growth impetus.

“It (corporate tax cut) will cost the exchequer 0.7 percent of GDP, though the net impulse will be smaller, with the government eliminating some exemptions,” the S&P report said.

“The short-term effect on the economy would be limited until businesses felt more confident about the outlook for demand,”, rating agency said.

According to the latest S&P quarterly report on Asia-Pacific region, household confidence in India continued to remain soft and, after people dipped into savings to sustain spending in the recent quarters, there were signs of more caution.

Green shoots

Long-awaited green shoots in investment were emerging but the slight pick-up in growth to 4 percent failed to offset fully weak consumption, it added.

“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," S&P said.

The rating agency said for some emerging markets, including India and Indonesia, low inflation was a blessing since it created more room for cutting rates.

“We expect further cuts if external conditions (US rates and oil prices) provide space,” S&P said.

The Reserve Bank of India has reduced policy rates by 110 basis points so far this year in four consecutive cuts.

Market expects the Indian central bank to cut rates again later this week by at least 25 basis points.