One of the big three credit rating agencies in the world, Fitch Ratings Inc, snips India’s GDP growth estimate to 5.5%. However, the rating agency assured to rise to 6.2% and 6.7% in the following years. Also, GDP expansion will gradually grow due to several government actions that aid economic boost.
Fitch Ratings reasoning for the slowest economic growth in six years
The credit squeeze that emerged from Non-Bank Financial Companies (NBFCs) has led to the economic downfall. Supporting this, RBI reported that the flow of new credits from NBFCs have fallen 60%. Furthermore, the domestic payout and the shortfall of demand has decelerated the Indian economy for the fifth ensuing quarter. Additionally, they attributed the slowdown to weak occupational availability among the rural houses. This financial stress was agreed upon by Moody’s investor service.
Similarly, Asian development bank, Organization of Economic Cooperation and development (OECD) and the International Monetary fund (IMF) have all lowered India’s GDP growth rate projections.
RBI Lowers interest rates
Bank’s credit have regained momentum in recent months, despite the tremendous credit crunch in the first quarter of the year. RBI’s focus on overcoming recession by lowering interest rates, while couldn’t completely cut down policy rates. As a result, real lending interest rates have increased in turn not able to revive credit.
Government aids to shore up the Economy
Government came up with several policies to restore economic growth in India. Initially, in an attempt to overcome the liquidity crunch faced by NBFCs, the center encouraged the high purchase of NBFCs assets. Additionally, cut corporate taxes and provided financial aid to the banks.
Despite the attempts, a prominent growth is not yet obtained. The growth is most likely to remain below its potential for the following year. Nevertheless, as per the forecast, a growth graph predicted to amount only 6.2% and 6.7% in the consecutive years.