Moody’s Investors Service sees India’s growth slowdown as one that’s driven by multiple and partly “long-lasting” factors, it said in a review of the Indian economy today.

The rating agency sees the Indian economy growing at 5.8 percent in 2019-20 compared to its earlier forecast of 6.2 percent. Growth is expected to pick-up to 6.6 percent in the following year and to 7 percent over the medium term, Moody’s said. There are few prospects of a rapid bounce-back in the Indian economy, Marie Diron, managing director—sovereign risk at Moody’s, told BloombergQuint. “Compared with only two years ago, the probability of sustained real GDP growth at or above 8 percent has significantly diminished,” Moody’s said in its note. The factors behind the slowdown, according to Moody’s, are multiple and mainly domestic.

What was an investment-led slowdown has broadened into consumption, driven by financial stress among rural households and weak job creation. A credit crunch among non-bank financial institutions, major providers of retail loans in recent years, has compounded the problem. Moody’s Investors Service

Diron said that the rating agency is watching to see the effectiveness of recent policy initiatives intended to shore up growth. “We have seen policy easing on fiscal and monetary policy side. What we’re watching for is the effectiveness of that easing,” she said. “On the monetary policy side, the rate cuts don’t seemed to have been passed through, so the cost of financing for the economy is not falling at the same pace.” India’s Monetary Policy Committee has cut rates by 135 basis points in 2019, while the government has used up fiscal space to announce corporate tax cuts. The corporate tax cuts may have a mild positive impact on growth of 0.1-0.2 percentage points, Diron said, while adding space for any further fiscal easing is constrained by the government’s objective of keeping fiscal deficit at a relatively low level.

Watch | Moody’s Marie Diron says weaker growth threatens India’s fiscal road map

Prospects Of Fiscal Consolidation Limited The lower nominal GDP growth and the recently announced corporate tax cuts will also constrain scope for fiscal consolidation in India, Moody’s said. The rating agency expects the central government fiscal deficit at 3.7 percent of GDP in the current year, marking a 0.4 percentage point slippage from its target. “A prolonged period of slower nominal GDP growth not only constrains scope for fiscal consolidation, but also keeps the government debt burden higher for longer compared with our previous expectations,” Moody’s said. According to the rating agency’s estimates, should nominal GDP growth remain around 11 percent, the central government’s debt burden will remain broadly stable at around 68 percent of GDP in the next few years, and decline slightly toward 66 percent by 2023.

However, we continue to see low probability of a significant and rapid deterioration in fiscal strength, India’s main credit constraint, given the resilience to financing shocks offered by the composition of government debt. Moody’s Investors Service