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Moody's Says India Headed for Debt Trap And Recessionary Phase; Cuts Outlook to Negative from Stable

Moneylife 2019-11-08 00:00:00
Moody's Investors Service has downgraded its outlook on India's ratings to "negative" from "stable", on increasing risks of lower economic growth than the past and reflecting lower government effectiveness at addressing long-standing economic and institutional weaknesses.   "Despite government measures to help reduce the depth and duration of India’s slowdown in economic growth, prolonged financial stress among rural households, weak job creation, and a credit crunch among non-bank financial institutions have increased the probability of a more entrenched slowdown. If nominal gross domestic product (GDP) growth does not return to higher rates, the government will face significant constraints in narrowing its budget deficit and preventing a rise in debt," Moody's says in a release.   Moody's Investors Service has changed the outlook on the its ratings to negative from stable while keeping the foreign-currency and local-currency long-term issuer ratings unchanged at Baa2.
  The government responded to the downgrading saying India continues to be among the fastest growing major economies in the world, India's relative standing remains unaffected.    According to the ratings agency, the outlook on India partly reflects government and policy ineffectiveness in addressing economic weakness, which led to an increase in debt burden from already high levels.   At a six year low, India's economy grew only 5% year-on-year between April and June, its weakest pace since 2013, as consumer demand and government spending slowed amid global trade frictions.   The international ratings agency said it estimates that the country's growth slowdown is in part long-lasting while backing its other ratings for India.   However, the government says, "India continues to be among the fastest growing major economies in the world, India’s relative standing remains unaffected.IMF in their latest World Economic Outlook has stated that Indian Economy is set to grow at 6.1% in 2019, picking up to 7 % in 2020. As India’s potential growth rate remains unchanged, assessment by IMF and other multilateral organizations continue to underline a positive outlook on India."   IMF in their latest World Economic Outlook has stated that Indian Economy is set to grow at 6.1 per cent in 2019, picking up to 7 per cent in 2020.   As India's potential growth rate remains unchanged, assessment by IMF and other multilateral organizations continue to underline a positive outlook on India, the Finance Ministry said.   The Government has undertaken a series of financial sector and other reforms to strengthen the economy as a whole. Government of India has also proactively taken policy decisions in response to the global slowdown. These measures would lead to a positive outlook on India and would attract capital flows and stimulate investments, it said   The fundamentals of the economy remain quite robust with inflation under check and bond yields low. India continues to offer strong prospects of growth in near and medium term, the Finance Ministry added.