Moody’s cuts India GDP growth forecast to 5.8%

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News:International rating agency Moody has announced the lowering of India’s Gross Domestic Products(GDP) growth to 5.8% from 6.2%.

Facts:

  • The reasons for lowering the growth rate are (a)investment-led slowdown (b)weak consumption (c)financial stress among rural households and (d)weak job creation.
  • Further, credit crunch among Non-Bank Financial Institutions(NBFIs) who have been major providers of retail loans in recent years has increased the problem.
  • However,Moody’s has said that it expects a moderate pickup in real GDP growth and inflation over the next two years through monetary and fiscal stimulus.

Fiscal Deficit:

  • Moody has said that the recently announced corporate tax cuts and lower nominal GDP growth may increase the fiscal deficit to 3.7% of GDP in financial year 2019 marking a 0.4 percentage point slippage from its target.
  • It also said that the structural need for spending on public sector salaries, welfare schemes and infrastructure is also a major cause of India’s deficit. 
  • Further,the nation’s limited tax revenue base due to a large low-income population has also impacted fiscal deficit.

Additional information:

About Fiscal Deficit:

  • Fiscal deficit is the amount of money that the government needs to borrow in a given year because their expenses were more than their revenues.
  • In Union Budget 2019,India has set a fiscal deficit target of 3.3% of the Gross domestic product(GDP) for 2019-20.

About Moody:

  • Moody’s is an essential component of the global capital markets.
  • It providing credit ratings, research, tools and analysis that contribute to transparent and integrated financial markets.