Moody's which has earlier forecasted India’s GDP growth to 7.5% for the next two years has said that India’s GDP growth is likely to face challenge in next two years, due to sluggish global demand, high leverage in some corporate sectors and impaired credit supply. Further, it said that investment activity for at least several quarters will be affected by continued high corporate leverage, low nominal domestic growth and lack of corporate pricing power.
According to the Moody’s Investors Services quarterly publication report 'Inside India' that looks at major credit trends in the country, the corporate deleveraging is likely to take time as weak global demand has impacted cash flows and commodity producing. It added that measures like imposition of minimum import price of steel will have only little positive result, while spectrum auctions will raise corporate leverage.
Though Moody's estimated a downside risk to the forecast because of potential negative external or domestic shocks, but remained positive on the India's medium-term potential, adding that it will be supported by steady implementation of policy reforms, which will improve the business environment, state of infrastructure and productivity growth.
Moody's with a long term outlook said that India has better opportunities for ‘catch-up’ GDP growth at levels higher than similarly rated peers provided improvements in the business environment, increase in the infrastructure investment and in the share of manufacturing and foreign direct investment in the economy.
Commenting on the Brexit impact on India’s financial markets, Moody’s said that the effects will be limited as exports to the UK and the rest of the European Union account for 0.4 per cent and 1.7 per cent of India's Gross Domestic Product respectively.