Economic Slowdown: Moody's Lowers India's Outlook to 'Negative' From 'Stable'

Moody’s Investors Service has changed the outlook on India’s ratings to ‘negative’ from ‘stable

Moody’s Investors Service has changed the outlook on India’s ratings to ‘negative’ from ‘stable

"India continues to offer strong prospects of growth in the near and medium-term", it added.

Moody's said this could result in another negative shift.

Moody's said that the decision to change the outlook partly reflects lower government and policy effectiveness at addressing long-standing economic and institutional weaknesses than it had previously estimated, leading to a gradual rise in the debt burden from already high levels.

The worldwide ratings agency said it estimates that the country's growth slowdown is in part long-lasting while backing its other ratings for India.

The Ministry of Finance, in a statement, said India continued to be among the fastest-growing major economies in the world.

The ratings agency does not expect the credit crunch among non-bank financial institutions to be resolved quickly, it added.

SBI in its recent report had said India's GDP is likely to slow further in Q2 to below 5 per cent amid a decline in consumption, weak investments and an under-performing service sector.

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"As India's potential growth rate remains unchanged, assessment by International Monetary Fund and other multilateral organizations continue to underline a positive outlook on India", it said, adding that the government has undertaken series of financial sector and other reforms to strengthen the economy as a whole.

The ministry said the Centre had proactively taken "policy decisions in response to the global slowdown".

Moody's comments come days after S&P Global Ratings warned that risks of contagion are rising in the Indian financial sector.

According to reports, the agency said investors will be watching India's gross domestic product data for "signs of further, long-lasting weakness".

The rating agency said potential GDP growth and employment generation will remain constrained unless reforms are advanced to directly reduce restrictions on the productivity of labor and land, stimulate private sector investment, and sustainably strengthen the financial sector.

After the corporate tax cuts and lower nominal GDP growth, Moody's now expects a government deficit of 3.7% of GDP in the fiscal year ending in March 2020, compared with a government target of 3.3% of GDP. "With a per-capita income of around $7,900 on a purchasing power parity (PPP) basis in 2018, Indian households' capacity to absorb such negative shocks is limited", it cautioned.

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