Poll results could impact growth: Moody's

Global rating agency Moody's on Thursday said that India's economic recovery is likely to be slow in the second half of 2014, but the outcome of general elections could have an impact on the growth prospects of the country.

This, it said, is the reflection of its expectation that global growth prospects will improve while global risks will decline.

Without specifically mentioning about India, Moody's Investors Service also said that sovereign ratings in South and Southeast Asia will be largely stable in 2014.  Moody's Sovereign Risk Group Senior VP and Manager Tom Byrne said however that “the outcome of national elections this year could also affect growth, depending on how it impacts sentiment and policies.” 

The World Bank has projected that India's economy will grow at over 6 per cent in financial year 2014-15 and 7.1 per cent by financial year 2016-17 as global demand recovers and domestic investment increases.  It may be noted that the country's economic growth slipped to a decade's low of 5 per cent in financial year 2012-13.

Growth in the first half of financial year 2013-14 is 4.6 per cent, but the government expects the growth for the entire fiscal ending March 2014 to be at 5 per cent. At the same time, a further pick up is also expected in the coming months.Further, Moody's projected India's inflation and interest rates to decline during the year.  It has assigned 'Baa3' rating on India with a stable outlook. 'Baa3' means medium grade with moderate credit risk.

The rating agency said the fiscal deficit would remain higher than those of similarly rated countries in 2014.  "Social welfare measures, for instance, such as the Food Security Act passed last year, will raise the government's medium-term expenditure commitment," Byrne added.

The Food Security Bill was passed by the Lok Sabha in August. The annual financial burden after its implementation is estimated to be about Rs 1.30 lakh crore at current cost.

The government hopes to contain fiscal deficit at 4.8 per cent of gross domestic product in the current fiscal and reduce it further to 3 per cent by financial year 2016-17.Furthermore, Moody's said the structure of India's government debt -- which is owed mostly domestically, in domestic currency, at relatively low real rates, and at relatively long tenors -- has mitigated stress on the government's fiscal position.