World Economy

Moody’s Optimistic Over India’s Reform rogress

Moody’s Optimistic Over India’s Reform rogressMoody’s Optimistic Over India’s Reform rogress

Precisely a week after it lowered India’s growth forecast for this year, Moody’s on Tuesday said the country’s economy reflected some growth potential and even hinted at a ratings upgrade it sees some progress in reforms and macroeconomic indicators.

“India’s Baa3 government bond rating reflects strong growth potential of its large and diverse economy, balanced against recurrent inflation, high fiscal deficits as well as regulatory and infrastructure constraints on competitiveness,” IANS quoted a report by Moody’s Investors Service as saying.

It said that in April 2015, the outlook on India’s rating was changed to positive from stable, based on the view that proposed and implemented policies could lower sovereign credit risk, calm inflation, improve regulations, increasing infrastructure spend and improve fiscal ratios.

“The rating could be upgraded if the above expectations are reflected in policy progress and macroeconomic indicators over the next year, and if we view this progress as sustainable,” the agency said, but with a caveat.

“However, the rating outlook would likely return to stable if: there is a slowdown in or reversal of the policy reform process, if banking system metrics continue to weaken, or if there is a decline in foreign exchange reserves coverage of external debt and imports.”

 Gradual Progress

A week ago on August 18, the agency said fears over deficient rains in the current monsoon season and gradual progress of reforms have prompted it to lower India’s growth forecast for this year by 50 basis points to 7%.

But in the latest report, the mood seemed optimistic.

“We assess India’s economic strength as ‘High’ relative to all other sovereigns we rate. The size of its economy, its growth rate and our expectation of continued strong economic growth support this assessment,” it said in Tuesday’s report.

“India’s GDP of $2,051 billion places it in top docile of all Moody’s-rated sovereigns and its investment ratio is also at the higher end among rated sovereigns. The economy’s scale insulates it to some degree against global or domestic trends that could otherwise hurt growth.”

It felt, India as an importer will benefit from a low commodity price environment, and its reliance on domestic demand for GDP growth shielded the economy, somewhat, from the subdued outlook for global growth.

 Volatile Markets

India’s Prime Minister Narendra Modi remains confident that the country’s economy will remain stable despite a global financial decline triggered by China that caused the South Asian nation’s stock market to crash on Monday, Indian Finance Minister Arun Jaitley said, PTI reported.

Jaitley said Modi plans to continue his reform agenda and increase public spending, saying in a meeting between top officials that the problem was “external and not internal,” it said. India’s benchmark Sensex bourse plummeted 1,624.51 points—almost 6%—to its lowest level since August 2014 at 25,741.56, while the country’s rupee currency fell to its lowest in 23 months at 66.64 against the US dollar.