Moody's cuts India's 2015 growth forecast to 7% on deficient monsoon

Forecast is below 7.3% recorded in FY15, much lower than Finance Ministry's growth target of 8.1-8.5%

India’s economy might grow by just seven per cent in 2015-16, lower than 7.3 per cent recorded in the previous financial year and way below the government’s projections of 8.1-8.5 per cent, if rating agency Moody’s Investors Service new projections prove true.

The rating agency on Tuesday cut its forecast for India’s economic growth to seven per cent for 2014-15 from the earlier 7.5 per cent, blaming it on weak monsoon. Even the revised growth forecast has a downside risk of slow pace of economic reforms. The rating agency, however, maintained its growth projections of 7.5 per cent for the next financial year.

“We have revised our growth domestic product (GDP) growth forecast down to around seven per cent, in light of a drier than average monsoon although rainfall was not as low as feared at the start of the season,” the rating agency said in its Global Macro Outlook. Moody’s is the first agency to come out with such low growth numbers for India’s economy.

According to the India Meteorological Department (IMD), the summer rainfall deficit has widened to 10 per cent and is projected to rise to 12 per cent by the end of the monsoon next month. This would raise fears of a fall in kharif output in parts of Maharashtra, Karnataka, Telangana, Andhra Pradesh, Bihar and eastern Uttar Pradesh.

If India’s economy does grow by seven per cent this financial year, it could turn out to be quite a blow to the one-year old Narendra Modi government at the Centre, since the previous United Progressive Alliance (UPA) regime has left it with 6.9 per cent economic expansion.

Moody’s projections came a month after Fitch Ratings had scaled down its economic growth forecast for India to 7.8 per cent for 2015-2016 from an earlier projection of eight per cent.

Even at seven per cent growth, India’s economy would among be the fastest-growing economies in the world, Moody’s senior vice-president Atsi Sheth said.

Moody’s kept its predictions for China’s economic growth unchanged at 6.8 per cent for 2015 and 6.5 per cent for 2016, falling towards six per cent in subsequent years. It projected the G-20 economies to grow 2.7 per cent in 2015, less than 2.9 per cent in the previous year. These economies are expected to expand three per cent in 2016. It said depreciation of the renminbi so far, will have no significant impact on GDP growth.

Reforms don’t begin on one day and end on another: Sinha

Minister of State for Finance Jayant Sinha has responded to Moody’s cutting down projections on India. Rating agency Moody’s Investors Service also cautioned of further risks to growth from the slow pace of reforms. Responding to its statement, Sinha said reforms don’t begin one day and end on another.

“It is a continuous process of pushing in a host of other areas. We’re going to push forward as long as reforms are concerned. As far as our efforts go, they will show up in terms of growth and job creation. Eventually the rating agencies too will acknowledge the same,” Sinha said on the sidelines of an event organised by SIDBI.