In not so encouraging development for the economy, global rating agency, Moody’s Investor Service has stated that monsoon failure and global financial volatility could pose additional risks to India's growth this year, despite this it expects the growth likely to average around 7.5% over the next 18-24 months due to improvement in business environment induced by reforms. The recent reforms efforts from India’s central bank include inflation targeting framework, regulatory simplification, increase in limits for foreign direct investment in rail infrastructure, defence and insurance sectors, among others.
Further, Moody’s in its report highlighted that the current economic conditions in India was reflective of both global and domestic factors, including weak domestic credit conditions, tepid local demand and uncertain global growth. The report further noted that India’s structural reform efforts would revive domestic investment and competitiveness, but over the medium and not the near term.
The report cautioned that US fed decision of hiking rates by June or September could trigger a flight of capital from emerging markets, including India, and result in financial volatility. It added that India’s monsoon for the second consecutive year were likely to be below normal in the current year at 93%, as parts of north-west and central India may be the most affected.
Moody’s highlighted the sustainability of the growth rates for the economy would be depended upon measures taken on infrastructure, regulatory and implementation of bureaucratic reforms front and further cautioned that despite robust growth, India's fiscal metrics were likely to remain weaker than those of similarly rated peers, and that he social, political and economic challenges associated with low average incomes would continue to persist over the medium term.
Nevertheless, the rating agency also listed favourable demographics, a large economy, economic diversity as well as high savings and investment rates as India's structural positives.
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