Moody's cuts India’s outlook to 'negative' Even as government insists economic fundamentals are strong

Global rating agency Moody's Investors Service on Friday cut India's outlook from 'stable' to 'negative' reflecting the increasing risks to the country's economic growth and the government's failure in addressing longstanding economic and institutional weaknesses.

The government however, said that India continues to be among the fastest growing major economies in the world, and its relative standing remained unaffected. BSE Sensex was down 300 points.

Moody's is among the growing list of global agencies, including the Reserve Bank of India, which have downgraded the India growth story for similar reasons. Fitch Ratings and S&P Global Ratings still hold India's outlook at 'stable'.

Warning that India could be heading for a debt trap and recessionary phase, the agency said it doesn't expect the credit crunch among non-bank financial institutions, the main source of consumer loans in recent years, to be resolved quickly.

At a six-year low, India's 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.

Moody's also affirmed India's Baa2 foreign-currency and local-currency long-term issuer ratings.

Baa2 is the second-lowest investment grade score, and the agency said it could downgrade the nation if fiscal metrics deteriorate materially.

Backing its other ratings for India, the agency said it estimates that the country's growth slowdown is in part long-lasting.

However, the Finance Ministry cited the IMF's latest world economic outlook that Indian economy is set to grow at 6.1% in 2019 and 7% in 2020. It also said the fundamentals of the economy remain quite robust with inflation under check and bond yields low.

The downgrade puts additional pressure on India, which tried to revive demand in September with an unexpected cut in corporate taxes. But chances of more such reforms have diminished, and Moody's expects the government to struggle to narrow its deficit or contain a growing debt burden. Main input:IANS