International credit rating agency Moody’s Investors Service on Thursday lowered India’s projected Gross Domestic Product growth rate to 5.6% for the 2019-’20 financial year, PTI reported. The company had earlier predicted India would grow 5.8%.

The slowdown in the Indian economy was lasting longer than expected, the agency said. “We have revised down our growth forecast for India,” Moody’s added. “We now forecast slower real GDP growth of 5.6% in 2019, from 7.4% in 2018.”

The agency said growth was expected to accelerate to 6.6% in 2020 and 6.7% in 2021, but the pace would remain slower than in the recent past. “India’s economic growth has decelerated since mid-2018, with real GDP growth slipping from nearly 8% to 5% in the second quarter of 2019 and joblessness rising,” Moody’s added.

It said investment activity in the country was muted even before this, but the economy was buoyed by strong consumption demand. “What is troubling about the current slowdown is that consumption demand has cooled notably,” Moody’s said.

This came a week after the United States-based financial services company downgraded its outlook on India to “negative” from “stable”. The country’s foreign issuer rating was affirmed at Baa2, which is the second-lowest investment grade score. The agency added that while government measures to support the economy should help reduce the depth and duration of India’s growth slowdown, prolonged financial stress among rural households, weak job creation and a credit crunch among non-bank financial institutions have increased the probability of a more entrenched slowdown.

The government had responded saying the fundamentals of the economy remained robust, with inflation under check. India continues to offer strong prospects of growth in the near and medium term, the government added.

Economic slowdown

The economy has been struggling for several months. The growth rate slipped to a six-year low of 5% in the April-June quarter. It was the fourth straight quarter of slowdown. The Reserve Bank of India on October 4 revised the projected growth rate for 2019-’20 downwards to 6.1%, while the Asian Development Bank cut its growth forecast from 7% to 6.5% in September.

Last month, the International Monetary Fund lowered projected growth in the current financial year to 6.1%, but said it would rebound to 7% in the 2020-’21 financial year.

The crisis has affected the automobile sector the most. Data released on November 11 showed passenger vehicle sales rose for the first time in 12 months in October, albeit a marginal 0.28%. The slowdown so far is one of the worst to have disrupted the industry since the collection of data on vehicle sales started in 1997.

Industrial output contracted 4.3% in September compared to the same month last year, government data showed on Monday. The output of eight core sectors of the Indian industry – coal, crude oil, natural gas, refinery products, fertiliser, steel, cement and electricity – declined by 5.2% in September.

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