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CIMA Gallary

Moody's bullish on India growth; says policy environment nothing new

New Delhi, Jun 25 (PTI): Emphasising that slowdown is unlikely to be a permanent feature of the Indian economy, global agency Moody's Investors Service on Monday retained the country's credit rating outlook at stable even as its peers are bearish on the growth prospects.

Moody's said it was “maintaining its stable outlook on India's current 'Baa3' rating.

According to Moody's, various credit challenges such as weak fiscal performance, tendency towards inflation and an uncertain investment policy environment, “have characterised the Indian economy for decades, and are already incorporated” into the rating.

On the other hand, the agency noted that certain recent negative trends -- lower growth, slowing investment and poor business sentiment -- “are unlikely to become permanent or even medium-term features of the Indian economy”

Reacting to it, Prime Minister's Economic Advisory Council Chairman C Rangarajan said, “Well, I think it's good that Moody's has affirmed the stable grade. It also shows that the Indian economy is right on the track”.

Moody's affirming India's stable outlook comes against the backdrop of two of its rivals -- Standard & Poor's and Fitch -- lowering the credit rating outlook to negative.

Morgan Stanley has also lowered India's growth forecast.

However, Moody's on Monday noted that global and domestic factors, including potential shocks in agriculture, could keep India's growth below trend for the next few quarters.

India, one of the fastest growing economies, is faced with slow growth and falling rupee. Gross Domestic Product (GDP) growth rate fell to 6.5 per cent in 2011-12 from 8.4 per cent in past two fiscals.

On the rupee's sharp depreciation, Moody's said it does not raise the government's own debt service burden significantly.

The rupee's decline does not raise government's own debt service burden significantly, as most of it's foreign currency debt is owed to multilateral and bilateral creditors with low annual repayment requirements, Moody's said.

It further said India's debt and fiscal deficit ratios have always been worse than those of similarly rated peers, adding that its own assessment of low government financial strength is based not merely on a comparison of ratios, but also on the underlying reasons for weak government finances.

”These lie in the role fiscal policy plays in maintaining social stability in a highly diverse, poor and unequal society, which limits government revenues and imposes demands on government expenditure,” it said.

This poverty constraint, Moody's said, is effectively factored into the rating by assigning India a 'moderate' economic strength assessment, despite the well above global average size and growth rates of its economy.

Furthermore, the impact of lower growth and still-high inflation will deteriorate credit metrics in the near term, but not to the extent that they will become incompatible with India's current rating, the global agency said.

Terming Moody's action as a 'balanced opinion', senior economist of HDFC Bank, Jyotinder Kaur said “despite imbalances in the economy, the fact is that India's debt servicing, especially external debt servicing is very low”.

Despite pressure on various fronts, there is no sustained threat on India's credit worthiness, she added.