Moody's cuts India outlook to negative; govt defends

Global rating agency Moody’s on Friday downgraded India’s sovereign rating outlook to negative from stable holding that the country’s economic slowdown could be structural and a credit crunch among non-bank financial institutions has increased the probability of a more entrenched slowdown.

The government defended itself immediately saying IMF and other multilateral organizations have underlined a positive outlook on India.

“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 (NBFIs), have increased the probability of a more entrenched slowdown," Moody’s said.

It also said the prospects of further reforms that would support business investment and growth at high levels, and significantly broaden the narrow tax base have “diminished”.

Raising concerns over slowing nominal GDP, it said, “If nominal GDP growth does not return to high rates, Moody's expects that the government will face very significant constraints in narrowing the general government budget deficit and preventing a rise in the debt burden”.

Minutes after the downgrade, the finance ministry issued a statement saying India’s continues to be among the fastest growing major economies in the world.

“India’s relative standing remains unaffected. IMF in its latest World Economic Outlook has stated that Indian economy is set to pick up to 7% in 2020. As India’s potential growth rate remains unchanged, assessment by IMF and other multilateral organizations continues to underline a positive outlook on India,” the statement said.

The Moody’s downgrade comes a day after Prime Minister Narendra Modi at the Global Investors’ Meet in Dharamshala said, “We have constantly maintained our commitment on macro-economy and have abided by fiscal discipline. Today, when global economic activity has come down to 3%, India is growing at more than 5%. Recent reports suggest that in coming months, India will grow at a faster pace. Our intention is genuine as well as sensitive. There is firmness in our decisions and intentions”.