Moody’s trims India’s ratings outlook to ‘negative’

Moody’s Investors Service on Thursday cut India’s ratings outlook to “negative” from “stable”, citing increasing risks that growth in Asia’s third-largest economy will remain lower than in the past.

The ratings agency said its action partly reflected government and policy ineffectiveness in addressing economic weakness, which in turn led to an increase in debt burden from already high levels.

Moody’s retained its foreign and local currency ratings at “Baa2”.

“India continues to be among the fastest growing major economies in the world and its relative standing remains unaffected,” said the finance ministry in a response to the outlook cut.

The economy grew only five 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.

This prompted a slew of rate cuts by the central bank, while the government rolled out several measures, including a sharp cut in corporate taxes, in a bid to boost growth.

“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 have increased the probability of a more entrenched slowdown,” said Moody’s.

After the corporate tax cuts and lower nominal gross domestic product (GDP) growth, Moody’s now expects a government deficit of 3.7 per cent of GDP in the fiscal year ending in March next year, compared with a government target of 3.3 per cent of GDP.