Moody’s will retain its ‘stable’ outlook on India, expecting economic growth to improve on back of consumer demand, although the country is still constrained by its fiscal deficit, an analyst at the ratings agency said.
The views stand in contrast with Standard & Poor’s and Fitch Ratings, both of which cut their outlook on India to “negative” this year, citing concerns about the pace of reforms and the government’s fiscal deficit among some of the key factors.
Recent actions by the government to undertake key reforms showed some determination to take unpopular steps. The government announced a series of reforms this month, including a rise in diesel prices, the liberalization of retail trade, and a bailout for the power sector.
Moody’s still expected the country to overshoot a fiscal deficit target of 5.1% of gross domestic product for 2012-13 fiscal year ending March.
Moody’s, which has a ‘Baa3’ rating on the sovereign, expects growth to turn around in the medium term as private investments pick up, driven mostly by domestic consumption. The country’s quarterly GDP growth of 5.5% for April-June was its slowest in nearly three years and a far cry from near double-digit growth seen before the 2008 global financial crisis. The slowing economy along with India’s wide deficits, including in its current account, sparked the downgrade threat from S&P and Fitch. All three agencies currently have the country at the lowest investment-grade rating. The proposed government measures sparked a rally in Indian markets, but investors still want to see signs of fiscal discipline by the government.
India will likely borrow an additional Rs 50,000 crore for the year ending in March and post a fiscal deficit of 5.8%, a Reuters poll showed.
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