India, India economy, Narendra Modi
India’s Prime Minister Narendra Modi is adamant that the country remains one of the world’s fastest-growing economies. | Source: REUTERS/Soe Zeya Tun
  • India’s GDP growth is expected to slip further in the fiscal second quarter that extends from July to September.
  • Narendra Modi and co. have been trying a slew of initiatives to boost growth, but they seem to be failing.
  • Moody’s and a host of others have turned negative about the prospects of the Indian economy.

The Indian economy has lost its wheels this year as the Narendra Modi-led government has failed to address key issues ranging from unemployment, a slowdown in auto sales, and a banking crisis despite getting a landslide mandate in this year’s elections. India’s GDP growth was down to a six-year low of just 5 percent during the April-June quarter, prompting global agencies to slash the once fast-growing Asian nation’s growth forecast.

Moody’s, for instance, had slashed India’s GDP growth forecast to 5.8 percent last month from the earlier estimate of 6.2 percent. The credit ratings agency gave the Narendra Modi-led government another headache earlier this week when it downgraded its ratings outlook for India to “negative” from “stable.”

India bull Mark Mobius calls Moody’s action “erroneous”

However, not everyone believes that the Indian economy and the country’s GDP growth are on sticky ground. Mark Mobius, the founder of Mobius Capital Partners, told CNBC in an interview that the country is headed toward strong growth in the long run. The fund manager told CNBC:

I think Moody’s call was erroneous, I don’t think it was called for because I see tremendous growth coming in India going forward … I believe that a lot of the reforms are going to really begin to kick in and have a big impact on the economy going forward.

Mobius’ words should have come as a relief for officials in the Narendra Modi-led government who were quick to rebut Moody’s downgrade.

The Indian government continues to stick to its stand that India is among the fastest-growing world economies. In its rebuttal, the country’s finance ministry said that the recent policy initiatives that the government has taken will bolster the Indian economy. Mobius’ comments indicate that he is in agreement with the government’s stance, and he is not the only one toeing the establishment’s line.

India-based stock market watchers believe that Moody’s assessment is wrong. Bank of America Merrill Lynch says that it expects a new roadmap from the Narendra Modi government that will help keep the fiscal deficit under control. However, the overall mood about India’s economy and GDP growth continues to remain muted despite the opposing views presented by Mobius and others.

Can Narendra Modi and co. prevent an economic meltdown?

It looks like the economic challenges faced by Narendra Modi and company are only getting severe with each passing day. One of India’s largest public sector banks, the State Bank of India (SBI), has cut the country’s fiscal second-quarter GDP growth forecast to just 4.2 percent.

The bank has slashed India’s fiscal 2020 economic growth estimate to just 5 percent from the prior estimate of 6.1 percent. The SBI report points out the key problems faced by India’s economy under the current regime:

Based on our composite leading indicator that suggests the GDP growth to slow down further from 5.0 per cent in Q1 of FY20 to 4.2 per cent on account of low automobile sales, deceleration in air traffic movements, flattening of core sector growth and declining investment in construction and infrastructure.

The SBI report adds that it sees only 17 percent of the 33 leading indicators expanding now as compared to 85 percent in October 2018. The bank also called the 4.3 percent decline in India’s industrial output in September as alarming. A year ago, India’s factory output had increased by 4.6 percent.

Meanwhile, it looks like the Indian government has finally been pushed on to the back foot as it has started admitting that the country is in the midst of an economic slowdown. Prime Minister Narendra Modi dreams of making India a $5 trillion economy by 2024, but the consistent slowdown in GDP growth quarter after quarter makes that dream a far-fetched reality.

With all the indicators pointing toward a protracted economic slowdown in India, the Narendra Modi-led government should focus on the tasks at hand and ignore the likes of Mobius who are not aware of the ground realities affecting the various sectors in the country.

This article was edited by Samburaj Das.

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