India’s Economy Is Driven By Domestic consumption, Ignore No Sector

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India’s economy, as well as GDP, is purely powered by domestic consumption and we can not neglect any research market. Poor consumption of households would curb the economic growth of India and weigh on the credit quality of Indian issuers in a range of sectors. That’s according to Moody’s Investor Services, which lowered the country’s GDP growth forecast on Friday to 4.9 percent in 2019-20 from 5.8 percent previously. 

Rural financial stress, low job creation, and liquidity constraints were the major factors responsible for downturns in the economy, the credit rating agency said in a study.

“What was once an investment-led slowdown has now broadened into weakening consumption, driven by financial stress among rural households on the back of stagnating agricultural wage growth and constrained productivity, as well as weak job creation due to rigid land and labor laws,” stated Deborah Tan, assistant vice president, and analyst at Moody’s.

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The backbone of India’s growth has been household consumption, accounting for about 57 percent of gross domestic product (GDP) in 2018-19. In July-September 2019, India’s GDP growth rate dropped to 4.5 percent from 5.0 percent in the previous quarter.

The report also noted that this downturn was ‘exacerbated’ by the credit crisis among non-bank financial firms, the main providers of retail loans in recent years.

Report On Indian Economy And Its Conditions:

“While the income shock to households has been unfolding over several years, it was not visible on headline growth as long as households could borrow from NBFIs. With the materialization of a credit supply shock, we now see the impact of these twin shocks on growth,” Tan said in the study.

Moody’s expects government initiatives to boost domestic demand to counter this downturn, including welfare payments for farmers and low-income households, monetary policy tightening, and a large corporate tax cut.

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“Although a modest recovery is expected for next year, supported partly by spillovers from policy stimulus, economic growth will be weaker than in recent years, which will have negative credit implications for Indian issuers in a range of sectors,” it noted. In automotive, weak demand and tight liquidity will constrain automakers’ earnings.

Slower growth in the economy over the past few quarters would also reduce household debt servicing capabilities, which will in effect weaken retail loan asset quality across all segments, the report said.

Private sector banks are more exposed to retail loans and would be much more at risk, the report said, stating that there will be a steady rise in non-performing loans (NPLs).

 

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Parth Dubey
Parth Dubey
I am Parth Dubey, currently an undergraduate. I have been working as a content writer for the past 6 months and have worked in various fields with many people and firms. I firmly believe that writing is not just about money making or attracting people, it's more about knowledge and information, along with feelings.

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