Why Moody has downgraded India’s GDP growth projection

"We have revised our GDP growth forecast down to around 7%, in light of a drier than average monsoon," said Moody's in its statement.

“We have revised our GDP growth forecast down to around 7%, in light of a drier than average monsoon,” said Moody’s in its statement.

Almost four months after it revised India’s outlook to ‘positive’ from ‘stable’ and set a GDP growth target of 7.5 per cent for 2015, Moody’s revised its GDP growth projection to 7 per cent on Tuesday , citing a ‘drier than average monsoon’.

The rating agency though, maintained its growth forecast of 7.5 per cent for the year 2016 and said that India will continue to outperform its peers over the medium-term.

“We have revised our GDP growth forecast down to around 7%, in light of a drier than average monsoon,” said Moody’s in its statement.

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The revision comes a day after the Prime Minister Narendra Modi, while addressing the Indian diaspora in Dubai, said that the world’s perception about India has changed and all leading global agencies including Moody’s have revised their outlook on India.

Moody has, however, not ruled out a downward revision on account of the slower than expected pace of reforms. The note said, “One main risk to our forecast is that the pace of reforms slows significantly as consensus behind the need for reform weakens once the least controversial aspects of the government’s plan have been implemented.”

The downward revision comes despite the rating agency noting that India will benefit from the fall in commodity prices over the last one year and will be minimally impacted by demand from China and slower global trade growth.

Stating that the growth will continue to be at 7.54 per cent in 2016, Moody’s said, “Economic activity will continue to strengthen on the back of a gradual implementation of reforms that foster domestic and foreign investment. Consumption growth will continue to be supported by large income gains as inflation has fallen to relatively low levels by the country’s past standards and favourable demographics.”

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Earlier in June, a poll conducted by Moody’s global credit research showed that while the participants were optimistic about a 7.5 per cent GDP growth for FY’16, they raised concerns over ‘policy stagnation’ and how it was the biggest risk to country’s macroeconomic growth.

“Our polling results pointed to some disappointment amongst the audience with regard to the pace of reform under the administration of Prime Minister Narendra Modi, and increasing concerns about the risk of policy stagnation,” Moody’s had said in June in a report titled ‘Inside India’.