Moody’s lowers India’s outlook to negative but Govt remains “positive”
Government asserted that India remains among the fastest growing major economies and its relative “positive” standing remains unaffected.

New Delhi (NVI): In yet another bad news for Indian economy reeling under a slowdown, Global ratings agency Moody cut India’s outlook to “negative” from “stable” but Government asserted that India remains among the fastest growing major economies and its relative “positive” standing remains unaffected.

Moody’s Investors Service downgraded India’s outlook citing increasing risks that growth in Asia’s third-largest economy will remain lower than in the past, even as it retained its foreign and local currency ratings at ‘Baa2’.

Moody’s said that its action partly reflected government and policy ineffectiveness in addressing economic weakness, which in turn led to an increase in debt burden from already high levels.

However, in its response to the cut in India’s outlook, the Finance Ministry said: “India continues to be among the fastest growing major economies in the world, India’s relative standing remains unaffected.” The ministry said Indian economy’s fundamentals remained “quite robust”.

“World Economic Outlook has stated that Indian economy is set to grow at 6.1% in 2019, picking up to 7% in 2020. As India’s potential growth rate remains unchanged, assessment by IMF and other multilateral organisations continue to underline a positive outlook for India,” a release by Finance Ministry said.

 “The Government has undertaken a series of financial sector and other reforms to strengthen the economy as a whole. Government of India has also proactively taken policy decisions in response to the global slowdown. These measures will lead to positive outlook on India and would attract capital flows and stimulate investments,” the ministry said.

“The fundamentals of economy remain quite robust with inflation under check and bond yields low. India continues to offer strong prospects of growth in near and medium term,” the Finance Ministry added.

The economy grew only 5.0 per cent year-on-year between April and June, its weakest pace since 2013, as consumer demand and government spending slowed amid global trade frictions.

This prompted a slew of rate cuts by the central bank, while the government rolled out several measures, including a sharp cut in corporate taxes, in a bid to boost growth.

“While government measures to support the economy should help to reduce the depth and duration of India’s growth slowdown, prolonged financial stress among rural households, weak job creation, and, more recently, a credit crunch among non-bank financial institutions have increased the probability of a more entrenched slowdown,” Moody’s said.

Moody’s said it does not expect the credit crunch among non-bank financial institutions to be resolved quickly.

After the corporate tax cuts and lower nominal GDP growth, Moody’s now expects a government deficit of 3.7 per cent of GDP in the fiscal year ending in March 2020, compared with a government target of 3.3 per cent of GDP.

-nad