“What is troubling about the current slowdown is that consumption demand has cooled notably,” it said.
Moody’s said none of the measures taken by the government recently, including cutting the corporation tax rates and sector specific announcements, directly address the widespread weakness in consumption demand, which has been the chief driver of the economy.
“Benign domestic inflationary pressures, subdued oil prices, and easing in other parts of the world will allow the central bank to continue to pursue an accommodative monetary policy stance. However, the transmission to lending rates continues to be hindered by the credit squeeze caused by disruption in the non-bank financial sector,” the report said.
Last week, Moody’s cut its outlook for India’s credit ratings to ‘negative’ from ‘stable’, citing the ongoing slowdown, financial stress among rural households, weak levels of job creation, and the liquidity crunch in non-banking financial companies.
Moody’s has affirmed India’s Baa2 long-term sovereign rating, the second lowest investment grade score, but said the negative outlook indicated that an upgrade was unlikely in the near term. Just two years ago, in November 2017, it had upgraded India’s ratings a notch to Baa2 from Baa3.
“Moody’s decision to change the outlook to negative reflects increasing risks that growth will remain materially lower than in the past, partly reflecting lower government and policy effectiveness at addressing long-standing economic and institutional weaknesses than Moody's had previously estimated, leading to a gradual rise in the debt burden from already high levels,” it had said.