India’s economic growth over the next two years will be challenged by lacklustre global demand and high leverage in some corporate sectors, rating agency Moody’s said in a report on Tuesday. Currently, Moody’s has a “Baa3” with positive outlook rating for the country.
“Growth will be adversely affected by high leverage of some large corporates also weighs on credit demand, while impaired assets in the banking system negatively affect credit supply,” said Marie Diron, a Moody’s senior vice-president and manager. Despite global headwinds and domestic challenges, India’s GDP grew by 7.6 per cent in FY16 as against 7.2 per cent in FY15.
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Moody’s said lower nominal growth affects revenues, suggesting that the government would have to rein in spending to meet its deficit target. “This will leave little room for fiscal measures to support investment or offset potential negative external or domestic shocks, which continue to pose downside risks to our forecast of around 7.5 per cent real GDP growth in the next two years,” it said.
By contrast, India’s medium-term potential will be supported by the gradual implementation of further targeted policy reforms, thereby improving the business environment, state of infrastructure and productivity growth, Moody’s said. “Although the parliament has passed some credit positive measures related to bankruptcy and foreign investment, the passage of laws related to land acquisition and the goods and services tax (GST) have stalled, illustrating our expectation that political friction will keep the reform process uneven and slow-moving,” the rating agency in its “Inside India” report.