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  3. Failure by the government in implementing key reforms could hamper investment: Moody’s

Failure by the government in implementing key reforms could hamper investment: Moody’s

26 Nov 2015 Evaluate

Amid government’s serious efforts to pass the key legislations in the present Winter Session of the parliament, global rating agency Moody's Investors Service has said that a failure by the government in implementing key reforms such as Goods and Services Tax (GST) and land acquisition laws could hamper investment and signal a derailed reform prospect. It cautioned that a loss of momentum on reforms may hamper investment and prove to be a 'downside factor' for Indian companies, even as it said most corporates will benefit from strong economic fundamentals and accommodative monetary policy.

The agency raising its doubt, said that it seems highly unlikely that the major reforms will get enacted by the Upper House of Indian Parliament where the ruling coalition is in minority. A failure to implement these reforms could hamper investment amid weak global growth, adding that the Modi administration so far this year has been unable to enact legislation on key reforms, including an unified goods and services tax and the Land Acquisition Bill.

In its other 'downside factors, Moody’s termed loss of reform momentum leading to annual GDP growth falling below 6 per cent, resulting in a deterioration of credit metrics. Also higher interest rates brought on by rising inflation and/or exchange rate volatility, resulting in a tight funding environment. It further said that weak global cues and an impending US rate hike may also have an impact on Indian businesses.

Regarding non-financial corporates, it said a 7.5 percent growth, easing inflation resulting in lower interest rate will lead to improving corporate cash flows and be broadly supportive of business growth. But on the same time, the corporates remain vulnerable to the volatile Indian rupee as against the US dollar and to low commodity prices, which has in turn led to a sharp decline in external trade.

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