Credit rating agency Moody’s Investors Service said on Thursday that India’s slowdown in economic growth was driven by multiple and long-lasting factors, BloombergQuint reported. Moody’s sees India’s Gross Domestic Product as growing at 5.8% in the 2019-’20 financial year, with growth expected to pick up to 6.6% in 2020-’21.

“Compared with only two years ago, the probability of sustained real GDP growth at or above 8% has significantly diminished,” Moody’s said in a note, adding that the multiple factors responsible for the slow growth are mostly domestic.

India’s GDP growth rate slipped to a six-year low of 5% in the April-June quarter. This was the fourth straight quarter of slowdown. The Reserve Bank of India on October 4 revised India’s projected growth rate for 2019-’20 to 6.1%. The Asian Development Bank had cut its growth forecast from 7% to 6.5% in September.

“What was an investment-led slowdown has broadened into consumption, driven by financial stress among rural households and weak job creation,” Moody’s said. “A credit crunch among non-bank financial institutions, major providers of retail loans in recent years, has compounded the problem.”

Moody’s Managing Director - Sovereign Risk, Marie Diron, said that the credit rating agency was watching to see the effectiveness of recent policy initiatives intended to shore up growth.

The Finance Ministry had last month announced a cut in corporate tax rates from 35% to 22%. The RBI has cut interest rates by 135 basis points in 2019.

“We have seen policy easing on fiscal and monetary policy side,” Diron said. “On the monetary policy side, the rate cuts don’t seemed to have been passed through, so the cost of financing for the economy is not falling at the same pace.” The corporate tax cuts might have a marginally positive impact of 0.1-0.2% in India’s growth rate, she added.

The rating agency also said that the tax cuts will reduce the scope for fiscal consolidation. It expects the fiscal deficit to touch around 3.7% of GDP from its present level of 3.4%. Moody’s said that if nominal GDP growth rate remains constant around 12%, the government’s debt burden will remain stable at 68% of GDP, and will decline to 66% by 2023.

Diron said that two years ago, when Moody’s upgraded India’s sovereign credit rating, there were prospects of 7.5-8% growth. “These prospects have weakened,” she said. “There were also prospects related to that, which is a steady decline in government debt burden, which is now less likely.” Moody’s currently has a Baa2 rating on India with a stable outlook.

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