Moody's cuts India's outlook to 'negative' on economic growth worries

Daniel Fowler
November 8, 2019

Moody's Investors Service on Thursday changed its outlook on India's ratings to "negative" from "stable", citing increasing risks that the country's economic growth will remain lower than in the past.

The Finance Ministry, in its response today, refuted Moody's' assertions and stated, "India continues to be among the fastest-growing major economies in the world and its relative standing remains unaffected".

It affirmed the Baa2 foreign-currency and local-currency long-term issuer ratings for India.

Moody's said that the decision to change the outlook partly reflects lower government and policy effectiveness at addressing long-standing economic and institutional weaknesses than it had previously estimated, leading to a gradual rise in the debt burden from already high levels.

In an official statement, the finance ministry said India continues to offer strong prospects of growth in near and medium term.

To strengthen the economy, the government has undertaken series of financial sector and other reforms, said the statement by the finance ministry.

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Even though the worldwide rating agency has estimated that the country's growth slowdown is in part long-lasting, assessments by the IMF and other multilateral organisations continue to underline a positive outlook on India, the Finance Ministry stated.

The rise in prices appears to be a reaction to downgrade in Moody's credit ratings for India to negative from stable because unlike domestic rates, worldwide gold prices fell on a rally in the stock markets seen on Thursday.

Despite positive cues from global markets and sustained foreign fund inflow, domestic equities turned volatile and retreated from record peaks after Moody's Investors Service lowered the outlook on India's credit ratings, traders said.

The prospect of more reforms that would back business investment and growth at higher levels and broaden the narrow tax base had diminished, the agency added.

With her maiden Budget for 2019-20 seemingly failing to address the widening problems in the economy, she took to announcing measures aimed at reversing the slowdown within a month of Parliament approving her Budget.

The report added that it does not expect the credit crunch among NBFIs, major providers of retail loans in recent years, to be resolved quickly. "There's a reasonable probability that that could happen, and this is a negative outlook so it gives them some time to play this out". However, S&P Global Ratings recently warned that "risks of contagion are rising in the Indian financial sector".

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