Global investors service giant Moody’s has claimed that there are growing “concerns” over the risk of policy stagnation and pace of reforms under Narendra Modi government. The concern that has prompted Moody’s to revise the ratings for India to ‘credit negative’. The global giant has also flagged the growth rate of rural economy as “subdued”.
However, it expressed an optimism with the incumbent regime over its long term policies and hoped for a room for a positive update.
In its latest ‘Inside India’ report, Moody’s claimed that this is a lowest investment grade rating, but a ‘positive’ outlook indicates room for further upgrade. It is basing its ratings on the results of the latest polls conducted by it, which has shown “some disappointment” with regard to the pace of reforms under the administration of Prime Minister Narendra Modi, and increasing concerns about the risk of policy stagnation.
Citing results of polls conducted during the first annual Moody’s and ICRA India Credit Conference in Mumbai last month, Moody’s said, “almost half of the respondents believed that sluggish reform momentum represents the greatest risk to India’s macroeconomic story going forward”.
Moody’s further said it expects India’s weakened rural economy to remain subdued through the fiscal year ending March 2016, particularly if the risk of below-average monsoon rainfall materialises.
“A sustained soft patch for India’s rural economy would weigh on private consumption and non-performing assets (NPA) in the agricultural sector, (which is) a credit negative for the sovereign and banks,” Moody’s Vice President and Senior Research Analyst Rahul Ghosh said
However, it also admitted that the recent policy changes are slowly taking effect and the positive impact of growth-enhancing reforms is only likely to take full effect over a multiyear horizon.
“Policies including the ‘Make in India’ campaign, increased foreign direct investment (FDI) limits in rail infrastructure, defence and insurance, and bills related to mining will all improve India’s growth outlook,” it said.
The global firm backed Modi government’s recent policy agenda including diesel price deregulation, lifting of the iron ore mining ban, the Coal Mines Special Provisions Bill and the Mines and Minerals Development and Regulation Bill. According to Moody’s, it will benefit refining, metals, steel and power companies.
In the survey, sluggish reform momentum was cited as the greatest risk (47 per cent) to India’s macroeconomic story over the next 12-18 months, followed by infrastructure constraints at the second place (38 per cent) and external shocks at the third (10 per cent).
The resurgent inflation and fiscal performance came as the fourth and fifth biggest concerns.
(With inputs from the PTI)