Moody's paints a grim picture for India, but govt says all's well
The ratings firm on Friday downgraded India's outlook to ‘negative’ from ‘stable’.
The ratings firm on Friday downgraded India's outlook to ‘negative’ from ‘stable’, the first step towards a downgrade, on concerns that country's economic growth will remain materially lower than it was in the past.
“Moody's decision to change the outlook to negative reflects increasing risks that economic growth will remain materially lower than in the past, partly reflecting lower government and policy effectiveness at addressing long-standing economic and institutional weaknesses than Moody's had previously estimated, leading to a gradual rise in the debt burden from already high levels,” the global rating agency said.
The fundamentals of the economy remain quite robust with inflation under check and bond yields low. Press release… https://t.co/sbeDwu1K63— NSitharamanOffice (@nsitharamanoffc) 1573188813000
“...the prospects of further reforms that would support business investment and growth at high levels, and significantly broaden the narrow tax base, have diminished,” the agency said in a statement.
The finance ministry, however, said India's fundamentals were strong. "India continues to be among the fastest growing major economies in the world. India’s relative standing remains unaffected,” it said in a statement.
IMF in their latest World Economic Outlook has stated that Indian Economy is set to grow at 6.1 per cent in 2019, picking up to 7 per cent in 2020, a finance ministry statement said.“As India’s potential growth rate remains unchanged, assessment by IMF and other multilateral organizations continue to underline a positive outlook on India,” it said, adding that the government has undertaken series of financial sector and other reforms to strengthen the economy as a whole.
The ministry added the Centre has also proactively taken policy decisions in response to the global slowdown and these measures would lead to a positive outlook on India and would attract capital flows and stimulate investments. “The fundamentals of the 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,” it said.
Moody’s comments came days after S&P Global Ratings warned that risks of contagion are rising in the Indian financial sector. The credit quality of Indian companies has plummeted to a record low as Prime Minister Narendra Modi’s government struggles to revive economic growth from a six-year-low.
“Stress among non-bank financial institutions. with the possibility of a more severe credit crunch that would affect credit supply, both directly and indirectly through linkages with non-banks and banks, adds to the downside risks to the medium-term growth outlook,” the ratings company said in a statement.
Loan-growth in Asia’s No. 3 economy slumped to 8.8% in October, the lowest level in two years, RBI data show. Bank credit to private, non-financial companies accounts for more than half of India’s gross domestic product, according to data from the Bank for International Settlements.
If nominal GDP growth does not return to high rates, Moody's expects that the government will face very significant constraints in narrowing the general government budget deficit and preventing a rise in the debt burden.