Economic Slowdown: Moody's Lowers India's Outlook to 'Negative' From 'Stable'

Marco Green
November 8, 2019

The report also noted that if nominal GDP growth does not return to high rates, it expects that the government will face very significant constraints in narrowing the general government budget deficit and preventing a rise in the debt burden.

Responding to it, the FM said that it is aware that Moody's Investors Service has changed the outlook India's ratings to negative from stable while keeping the foreign-currency and local-currency long-term issuer ratings unchanged at Baa2. Loan-growth in Asia's No. 3 economy slumped to 8.8% in October, the lowest level in two years, RBI data show.

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

The Finance Ministry issued a statement in which it said, "India continues to be among the fastest-growing major economies in the world and its relative standing remains unaffected".

India continues to offer strong prospects of growth in the near and medium-term, the Finance Ministry added.

However, the Baa2 rating balances the country's credit strengths including its large and diverse economy and stable domestic financing base for government debt, against its principal challenges including high government debt, weak social and physical infrastructure and a fragile financial sector.

The downgrade to the outlook puts additional pressure on authorities to kickstart the economy, although they have limited room to move.

Moody's said it doesn't expect the credit crunch among non-bank financial institutions, which were the main source of consumer loans in recent years, to be resolved quickly. "There's a reasonable probability that that could happen, and this is a negative outlook so it gives them some time to play this out".

The reaction from the government came after Moody's Investors Service downgraded its outlook on India's ratings to "negative" from "stable", attributing increasing risks that the country's economic growth will remain lower than in the past.

Other reports by Click Lancashire

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