SBI Research has cut India's gross domestic product (GDP) growth forecast for the fiscal year 2020 to 5 percent from 6.1 percent earlier on the back of global economic slowdown coupled by domestic woes.

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In a research note issued on Tuesday, SBI Research said that it expects domestic GDP growth to slow down further from 5.0 percent in Q1FY20 to 4.2 percent on account of low automobile sales, deceleration in air traffic movements, flattening of core sector growth and declining investment in construction and infrastructure.

However, the research house believes the growth rate to pick up pace in FY21 to 6.2 percent.

"We believe this growth rate in FY20 should be looked through the prism of a synchronised global slowdown. India is also significantly lower in Economic Uncertainty Index when compared globally," it said.

Further, IIP growth for September at –4.3% is quite alarming, it added.

Given the slowdown in growth, it expects larger rate cuts from the Reserve Bank of India (RBI) in December policy.

However, SBI's research unit believes that such rate cut is unlikely to lead to any immediate material revival, rather it might result in potential financial instability as it believes that debt-financed consumption against an increasing household leverage had not worked in countries and India cannot be an exception.

Reliance on the monetary policy alone could be counter-productive while the role of the fiscal policy is of paramount importance.

"Markets are not unduly worried about fiscal deficit and await clarity from Government on the extent of fiscal slippage in current fiscal," it added.

The alternative to targeting fiscal deficit is that like most advanced economies and several emerging market economies, India should target a structural deficit, which serves as an automatic counter-cyclical stabilizer.

The economic slowdown is not just restricted to the Indian economy, but has rather spread like a contagion from our Western and Eastern counterparts. The declining vehicle sales internationally and the overall industry slowdown is resulting in a moderation of global GDP growth to 3.2% in 2019 compared to the 3.8% in 2017, SBI Research added.

"The Government is doing the correct thing in addressing sector-specific problems. NBFC, Telecom, Roads, Power and Real Estate are sectors that require specific attention and there must not be any negative sector-specific policy surprises in the current uncertain environment! It is primarily only through such that we can come out of this slump and fiscal policy could only act as a supplement," it said.

Further, SBI Research believes that Moody’s change in outlook from stable to negative will not have any significant impact.