Moody’s Investors Service in its latest report has slashed India’s gross domestic product (GDP) growth forecast to 5.6 percent for the year 2019 from 5.8 percent projected earlier, pointing out that the measures taken by the government do not address the widespread weakness in consumption demand. It also expects that economic activity will pick up in 2020 and 2021 to 6.6 percent and 6.7 percent, respectively, but the pace to remain lower than in the recent past.
According to the report, the country’s economic growth has decelerated since mid-2018, with real GDP growth falling from nearly 8 percent to 5 percent in the second quarter of 2019 and joblessness rising. It also said investment activity was muted well before that, but the economy was buoyed by strong consumption demand. It added that what is troubling about the current slowdown is that consumption demand has cooled notably.
The report further stated that the government has undertaken a number of measures to arrest the growth slowdown. In September, the government announced a cut in the corporate tax rate to 22 per cent from 30 per cent. The government also lowered the tax rate for new manufacturing companies to 15 per cent to attract new foreign direct investments. Besides, it noted that the government’s other initiatives include bank recapitalization, the mergers of 10 public sector banks into four, support for the auto sector, plans for infrastructure spending, as well as tax benefits for startups. However, it said that none of these measures directly address the widespread weakness in consumption demand, which has been the chief driver of the economy.