Moody’s lowers India outlook to ‘negative’
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.
“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.
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.