Indian Economy slowdown

Moody’s take on Indian economy

Highlights:

v  FY20 GDP Projection, lowered from 5.8% to 4.9%.

v  Key concerns:

§  Weakening consumption

§  Rural financial stress

§  Low job creation

§  Liquidity constraints

§  NBFC credit crunch has exacerbated slowdown

§  Steps to stimulate demand will be limited in offsetting slowdown

v  Measures unveiled by Government:

§  Income support for farmers

§  Monetary policy easing

§  Broad corporate tax cut

v  FY21 Projection:

§  Modest recovery expected

§  Growth will be weaker versus recent years

§  Weak demand, tight liquidity to constrain auto earnings

§  Slow growth will reduce debt servicing capabilities of households.

Other Economists take on economy slowdown:--

v  Market’s assumption true; Fiscal deficit way higher than Govt.’s claims.

v  Govt. roadmap for future Fiscal roadmap will be crucial.

v  Not seeing the favourable macros needed for yields to move.

v  There’s not much space on Monetary or Fiscal side.

v  Govt. needs to look at imaginative approaches.

v  Govt. could look at a passive approach which does not need much political capital.

Allow NBFC to go sour over a period of time. Banks takes that hit and Govt. recapitalizes the banks. This does not involve much political capital and Govt. most likely to take this passive approach.

v  Another approach is Bad bank approach.

v  Govt. and RBI’s first objective must be to break the cycle of low growth and bad loans.

v  Need to pinpoint specific reasons behind low growth to find a remedy.