Moody’s low­ers In­dia out­look to ‘neg­a­tive’

The Hindu - - FRONT PAGE - Spe­cial Correspond­ent

Moody’s In­vestors Ser­vice has down­graded its out­look on In­dia to ‘neg­a­tive’ from ‘stable’ on Fri­day.

The down­grade in the sovereign out­look was fol­lowed by a down­grade in the out­look for a num­ber of pub­lic sec­tor and pri­vate sec­tor In­dian com­pa­nies. The com­pany has, how­ever, left In­dia’s cur­rent rat­ing (Baa2) un­changed, im­ply­ing that the slow­ing econ­omy has not yet af­fected In­dia’s cur­rent rat­ing, but could in the fu­ture.

Soon after, the gov­ern­ment is­sued a state­ment, de­fend­ing the econ­omy as one of the fastest-grow­ing ma­jor economies in the world. In its re­but­tal, the gov­ern­ment said In­dia re­mains one of the fastest-grow­ing ma­jor economies in the world, some­thing reaf­firmed by the In­ter­na­tional Mon­e­tary Fund (IMF).

The Moody’s de­ci­sion rep­re­sents a down­grade in its ex­pec­ta­tions of the fu­ture per­for­mance of the econ­omy.

Pol­icy ef­fec­tive­ness

“Moody’s de­ci­sion to change the out­look to ‘neg­a­tive’ re­flects in­creas­ing risks that eco­nomic growth will re­main ma­te­ri­ally lower, partly re­flect­ing lower gov­ern­ment and pol­icy ef­fec­tive­ness at ad­dress­ing long-stand­ing eco­nomic and in­sti­tu­tional weak­nesses , lead­ing to a grad­ual rise in the debt bur­den from al­ready high lev­els,” a state­ment from Moody’s In­vestors Ser­vice said.

The agency fur­ther said while the gov­ern­ment’s steps to sup­port the econ­omy should help re­duce the depth and du­ra­tion of the growth slow­down, a pro­longed fi­nan­cial stress among ru­ral house­holds, weak job cre­ation, and a credit crunch among non­bank­ing fi­nan­cial in­sti­tu­tions, had in­creased the prob­a­bil­ity of a more en­trenched slow­down.

“More­over, the prospects of fur­ther re­forms that would sup­port busi­ness in­vest­ment and growth at high lev­els, and sig­nif­i­cantly broaden the nar­row tax base, have di­min­ished,” it added.

IMF sup­port

In its re­but­tal to Moody’s down­grade, the gov­ern­ment state­ment said it re­mains one of the fastest­grow­ing ma­jor economies in the world, some­thing reaf­firmed by the In­ter­na­tional Mon­e­tary Fund (IMF).

“Gov­ern­ment of In­dia has noted that the Moody’s In­vestors Ser­vice has to­day changed the out­look on the Gov­ern­ment of In­dia’s rat­ings to ‘neg­a­tive’ from ‘stable’ while keep­ing the for­eign-cur­rency and lo­cal-cur­rency long-term is­suer rat­ings un­changed at Baa2,” the gov­ern­ment state­ment said. “How­ever, In­dia con­tin­ues to be among the fastest grow­ing ma­jor economies in the world, In­dia’s rel­a­tive stand­ing re­mains un­af­fected,” it added. The gov­ern­ment added that the fun­da­men­tals of the econ­omy re­main ro­bust, with in­fla­tion un­der check and bond yields low.

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