The global credit rating agency, Moody’s has red flagged the subdued rural economy as a 'credit negative' for India's sovereign rating and said that there are growing concerns about risk of policy stagnation and 'some disappointment' has emerged over the pace of reforms under the Modi government.
The rating agency however in its latest 'Inside India' report, said the consensus view on India's economic growth prospects is relatively optimistic and in line with Moody's baseline forecast of 7.5 percent expansion in current fiscal. It further said that the forecast represents the highest projection amongst G20 economies, and provides a key pillar of support for the Baa3 sovereign rating and positive outlook. Moody's said 'the multi-party, federal democracy in India underpins a gradual pace of policy implementation' and many of the policies are positive for India's institutional strength.
The agency has said it expects India's weakened rural economy to remain subdued through this fiscal, particularly if the risk of below-average monsoon rainfall materialises. In its latest poll almost half of the poll respondents identified sluggish reform momentum as the greatest risk to India's macroeconomic story. The rural income growth in India has been stuck in the mid-to-low single digits in so far this year, well off the more than 20% rates clocked in 2011. Moody's further believes the slower rural income growth is partly the result of increased fiscal restraint by the central government, which is unlikely to change in the coming quarters.
Talking about the corporate, Moody’s said that the plans to cut the country's corporate tax rate to 25% from the existing 30% over the next four years will be 'credit positive' for all Indian corporates insofar as it will reduce their tax expenses and increase their competitiveness over the medium term. Moody's further said India's pro-cyclical industries will benefit from improving credit conditions through the current fiscal, while the country's LNG import book was credit positive for companies like GAIL.
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