Moody's Investors Service has changed its outlook for India’s economic rating from ‘stable’ to ‘negative’, saying there’s a higher risk that growth will be lower. In response, the Finance Ministry called the state of the economy “quite robust”.
“Moody’s decision to change the outlook to negative reflects increasing risks that economic growth will remain materially lower than in the past, partly reflecting lower government and policy effectiveness at addressing long-standing economic and institutional weaknesses than Moody’s had previously estimated, leading to a gradual rise in the debt burden from already high levels,” the rating agency said in a statement.
The ratings agency expanded on its new rating, saying that while government measures to support the economy should help reduce the depth and duration of India's growth slowdown, prolonged financial stress among rural households, weak job creation, and a recent credit crunch among non-bank financial institutions (NBFIs), have increased the probability of a more entrenched slowdown, Moody’s said.
"“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.”" - Moody’s
The government on Friday, 8 November, reacted strongly to the change in Moody’s outlook, saying the fundamentals of the economy remain quite robust and series of recent reforms would stimulate investment.
In its own statement, the Finance Ministry said India continues to be among the fastest-growing major economies in the world.
“India’s relative standing remains unaffected,” it said, citing International Monetary Fund’s (IMF) recent World Economic Outlook putting Indian economic growth at 6.1 percent in 2019 and rising to 7 percent in the year after.
“As India's potential growth rate remains unchanged, assessment by IMF and other multilateral organisations continue to underline a positive outlook on India,” it said.
The ministry said the government has undertaken a series of reforms in the financial and other sectors to strengthen the economy.
“Government of India has also proactively taken policy decisions in response to the global slowdown. These measures would lead to a positive outlook on India and would attract capital flows and stimulate investments,” it said.
“The fundamentals of the economy remain quite robust with inflation under check and bond yields low. India continues to offer strong prospects of growth in the near and medium term.”
(With inputs from PTI)
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