Ind-Ra had earlier revised its GDP growth estimate to 6.7 per cent from its earlier forecast of 7.3 per cent in August.
The cut in forecast follows the Central Statistical Organisation (CSO) recent estimate of first quarter (April-June) growth at 5 per cent, which came in lower than India Ratings' estimate of 5.7 per cent.
"Although India Ratings had cited a slowdown in both urban and rural consumption demand growth as one of the key reasons for the downward revision of GDP in its August 2019 forecast, CSO's first quarter estimate shows that the slowdown has been much sharper than expectation," the ratings agency said in a report.
Ind-Ra expects the first half GDP growth to be 5.2 per cent, and recover to 6.9 per cent in the second half of the current fiscal, mainly on account of the base effect.
"The GDP growth in first half is likely to be 5.2 per cent. India Ratings expects it to recover to 6.9 per cent in the second half, mainly on account of the base effect," it said.
The slowdown in consumption demand is reflected in the Reserve Bank of India's (RBI) Consumer Confidence Index as well, that declined to 89.4 in September 2019 (95.7 in July 2019).
The other key indicators that have worsened lately are aggregate capacity utilisation declining to 73.6 per cent in the first quarter, banking credit to commercial sector turning negative at Rs 1,287 billion in the first half and non-banking credit to commercial sector falling to Rs 2,197 billion in the same half of the current fiscal.
Private consumption fell to 3.1 per cent in the first quarter, from 7.2 per cent in the previous one and 7.3 per cent in the same quarter a year ago.
The report highlighted that demand the bigger challenge facing the economy owing to a collapse in consumption demand, while private investment is not forthcoming.
The 2019-20 fiscal deficit has been budgeted at 3.3 per cent of the GDP.
In Ind-Ra's assesses that tax revenue in 2019-20 may fall short of the budgeted figure by around Rs 1,500 billion, similar to the tax revenue shortfall observed in the last fiscal.
According to the agency, although the increased transfer from the RBI after the acceptance of the Bimal Jalan Committee report on its Economic Capital Framework will provide some cushion, the announcement of reduction in the corporate tax rate will stretch the government finances.
Ind-Ra's calculations show that the fiscal deficit could increase to 3.6 per cent of GDP in 2019-20.
( With inputs from IANS )