New Delhi Correspondent
The Indian economy will grow 7.4 per cent this year but will slow down to 7.3 per cent next year as domestic demand tapers off on higher borrowing cost due to rising interest rates, Moody’s Investors Service said on Thursday.
In its report titled Global Macro Outlook 2019-20′, the US-based agency said the economy grew 7.9 per cent in the first half (January-June) of 2018 which reflects post- demonetisation base effect.
Stating that borrowing costs have already increased on higher interest rates, Moody’s said, it expects the Reserve Bank to continue to steadily raise the benchmark rate through 2019, which will further dampen domestic demand.
These factors will limit the pace of expansion of the Indian economy over the next few years with real GDP growth of 7.3 per cent in 2019 and 2020 from around 7.4 per cent in 2018, Moody’s said.
It said the greatest downside risk to India’s growth prospects stem from concerns about its financial sector.
The impact of higher global oil prices compounded by sharp rupee depreciation raises the cost of households’ consumption basket and will weigh on households’ capacity for other expenditures. Funds borrowing costs have already risen because of tightening monetary policy, it said.
Downside risks from a prolonged liquidity squeeze for non-bank financial institutions, which could lead to a sharper slowdown in their credit provision, remain, it added.