Moody's also cheers govt reform moves

The economic, fiscal and financial measures undertaken by the government and the Reserve Bank of India (RBI), if successfully implemented, are expected to sustain higher growth and tackle constraints on India's sovereign rating, global ratings agency Moody's has said. The agency said the measures unveiled are incremental, rather than radical.“However, together, the various measures will harness India's economic advantages of size, diversity and a deep pool of labour and savings,“ Moody's said in its latest report. “They will also improve its investment climate and allow the economy to reap the benefits of lower global commodity prices and international financial flows seeking real investment assets.“
Moody's has a Baa3 rating on India with a stable outlook. This is the lowest investment grade rating. Government officials say the rating agencies must acknowledge the efforts undertaken by the them to shore up governance and revive growth. The agency cited the recent measures, which include labour and investment policies, the “Make in India“ campaign, infrastructure development initiatives, improvements to the monetary policy framework offering clarity on inflation targets, banking sector reforms and the Jan Dhan financial inclusion plan, energy sector reforms and the ordinance that will allow commercial mining of coal by private companies.
But the agency cautioned it will take several quarters before the impact of these measures are visible in GDP growth and other macroeconomic parameters.
The NDA government has taken steps to boost growth, which has slowed below 5% for two consecutive years. It has been helped by slowing oil and other commodity prices.This has contributed to a significant cooling in inflation but economists say more is needed to steer the economy out of the choppy waters.
“Furthermore, by mitigating the risk of the macroeconomic volatility witnessed during the last business cycle, lower fiscal deficits, stable inflation rates and a strengthened banking sector will allow higher growth level to be sustained at around 7.5% over the next 5-10 years. Such a result would be significantly higher than the 5%-6% growth we expect for India in 2015,“ the agency said.
It said the effective implementation of all the measures could have further positive sovereign credit implications. “If they demonstrate rising institutional strength or lower vulnerability to even risk, Moody's would revisit its assessment of India's institutional strength if inflation metrics, investment climate, policy predictability and transparency show sustained improvement. Stronger fiscal balance of payments, and banking sector metrics would lower the country's vulnerability to event risk.“