Moody's Investors Service lowers India's outlook to negative from stable

Moody's Investors Service on Thursday slashed India's rating outlook to "negative" from "stable", citing increasing risks that growth in Asia's third-largest economy will remain lower than in the past

Moody's Investors Service on Thursday slashed India's rating outlook to "negative" from "stable", citing increasing risks that growth in Asia's third-largest economy will remain lower than in the past.

The rating agency said that its action partly reflected government and policy ineffectiveness in addressing economic weakness, which in turn led to an increase in debt burden from already high levels.

Moody's retained its foreign and local currency ratings at 'Baa2'. The Nifty 50 index.NSEI fell 0.4 p per cent in early trade on Friday, while the rupee INR=D4 weakened to 71.31 against the dollar, versus Thursday's close of 70.965.

"India continues to be among the fastest-growing major economies in the world, India's relative standing remains unaffected," the finance ministry said in a response to the outlook cut, adding that the economy's fundamentals remained "quite robust".

The rating agency said that its action partly reflected government and policy ineffectiveness in addressing economic weakness, which in turn led to an increase in debt burden from already high levels.

Moody's retained its foreign and local currency ratings at 'Baa2'.

The Nifty 50 index.NSEI fell 0.4 per cent in early trade on Friday, while the rupee INR=D4 weakened to 71.31 against the dollar, versus Thursday's close of 70.965.

"India continues to be among the fastest-growing major economies in the world, India's relative standing remains unaffected," the finance ministry said in a response to the outlook cut, adding that the economy's fundamentals remained "quite robust".

The economy grew only 5.0 per cent year-on-year between April and June, its weakest pace since 2013, as consumer demand and government spending slowed amid global trade frictions.

This prompted a slew of rate cuts by the central bank, while the government rolled out several measures, including a sharp cut in corporate taxes, in a bid to boost growth.

"While government measures to support the economy should help to reduce the depth and duration of India's growth slowdown, prolonged financial stress among rural households, weak job creation, and, more recently, a credit crunch among non-bank financial institutions have increased the probability of a more entrenched slowdown," Moody's said.

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Moody's said it does not expect the credit crunch among non-bank financial institutions to be resolved quickly.

The domestic auto sector is also in the middle of one of its worst slowdowns ever, and overall jobless rates rose to 8.5 per cent in October, the highest since August 2016.

Growth in fuel demand is on course to fall to its lowest in at least six years as the economy slows and after heavy rains impacted gasoil consumption, which accounts for about two-fifths of the nation's overall fuel use.

After the corporate tax cuts and lower nominal GDP growth, Moody's now expects a government deficit of 3.7 per cent of GDP in the fiscal year ending in March 2020, compared with a government target of 3.3 per cent of GDP.

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