Moody’s cuts India’s 2019 GDP growth forecast to 5.6% citing prolonged slowdown

"Investment activity was muted well before that, but the economy was buoyed by strong consumption demand. What is troubling about the current slowdown is that consumption demand has cooled notably," Moody’s said in a report.

Further, the rating agency believes that the recent government measures such as reduction in corporate tax, bank recapitalisation, merger of state-run lenders, infrastructure spending plans among others have failed to address the widespread weakness in consumption demand, which has been the chief driver of the economy.

Moreover, Moody’s also raised concerns over transmission of recent interest rate cuts by the Reserve Bank of India (RBI) which seems to hamper private investment as borrowing costs for corporates remain elevated.

Moody’s expects the RBI to go ahead with more rate cuts this year.

"Benign domestic inflationary pressures, subdued oil prices and easing in other parts of the world will allow the central bank to continue to pursue an accommodative monetary policy stance," Moody’s said.

However, the transmission to lending rates continues to be hindered by the credit squeeze caused by disruption in the non-bank financial sector, it added.