Moody’s Blues: Ratings Agency Cuts India Outlook to Negative
Govt counters view, says fundamentals of economy remain robust
THE RED FLAGS
Moody’s raises concerns over lower growth Says govt steps may not arrest prolonged slowdown
Dim prospects of more reforms to push growth
Slower growth to dampen income growth
Overseas borrowing costs to rise
Constraints in narrowing govt’s budget deficit
Forecasts fiscal slippage by 0.4 percentage points to 3.7%
Fundamentals of economy robust Inflation under check, bond yields low
India offers strong prospects of growth in near and medium term Steps taken to stimulate growth
New Delhi: International ratings agency Moody’s Investors Service cut India’s outlook to negative from stable, citing increasing risks to growth and a rise in the debt burden. Stocks tumbled and the rupee weakened.
The move came two years after Moody’s had upgraded the country. It, however, affirmed the Baa2 foreign and local-currency, longterm issuer rating on Friday. In line with the development, changes were effected in the outlook of Indian banks and other companies. The rupee ended at 71.29 per dollar, the lowest in about three weeks.
“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 rating agency said.
The government countered the agency’s view. “Fundamentals of the economy remain quite robust with inflation under check and bond yields low,” a finance ministry release said. “India continues to offer strong prospects of growth in the near and medium term.”
A government official said, “The outlook change is an asymmetric response not warranted by fundamentals.” Even the rating upgrade two years ago had come at the fag end of the upward cycle, he said.
‘Upgrade Unlikely in Near Term’