Moody’s downgrades India’s outlook to negative from stable; govt says fundamentals strong
Moody’s projects a budget deficit of 3.7 per cent of GDP in the year through March 2020.
The agency affirmed the Baa2 foreign-currency and local-currency long-term issuer ratings.
“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,” it said.
“...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.
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.
Moody's also affirmed India's Baa2 local-currency senior unsecured rating and its P-2 other short-term local-currency rating, a statement said.
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 (NBFIs), have increased the probability of a more entrenched slowdown.
The finance ministry reacted to the statement saying: ”... India continues to be among the fastest growing major economies in the world. India’s relative standing remains unaffected.”
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 Government of India 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.
The Baa2 rating balances the country's credit strengths including its large and diverse economy and stable domestic financing base for government debt, against its principal challenges including high government debt, weak social and physical infrastructure and a fragile financial sector.
India's long-term foreign-currency bond and bank deposit ceilings remain unchanged at Baa1 and Baa2, respectively.