Moody’s optimistic about India, but disappointed over pace of reforms

Highlighting India’s subdued rural economy as a ‘credit negative’ for its sovereign rating, global credit rating agency Moody’s has said there are growing concerns over the risks of policy stagnation, which have led to “some disappointment” over the pace of reforms under India’s Prime Minister Narendra Modi-led government.

A recent poll conducted by the organisation saw almost half of the participants pointing out the government’s sluggish reform as the biggest risk to India’s macroeconomic story. The poll highlighted disappointment over the pace of reforms under the current government.

However, the organisation showed confidence in the policy implementation, saying a democracy like India has a gradual pace of policy implementation, and the direct impact of the growth-enhancing initiatives is likely to take full effect over a multi-year horizon.

According to the weather prediction for this year’s monsoon, the country is set to receive less-than-normal rainfall this year, which would add onto the risk of India’s weakening rural economy. However, Moody’s said if the government can minimise the risk of below-average monsoon, the rural economy can be maintained throughout the current fiscal year, as many of the country’s policies are positive for its institutional strength.

In its latest ‘Inside India’ report published on June 30, Moody’s Investors Service said that India’s economic growth prospects are comparatively optimistic, which is as per its earlier prediction of 7.5 per cent growth in the current fiscal. In addition, Moody’s had revised India’s sovereign rating outlook from “stable” to “positive” in April this year.

Moody’s gave a “Baa3” rating to India, which is the lowest investment grade. Other major credit rating agencies, such as S&P and Fitch also gave the lowest investment grade rating to India.

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