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India’s GDP to remain in range of 6.5-7.5% over next 12-18 months: Moody’s

01 Aug 2017 Evaluate

Global rating agency Moody's Investors Service, citing its poll results of some of the largest investors, intermediaries and issuers in Asia Pacific, has stated that respondents are confident about India’s stable economic growth prospects. More than 60% of the respondents feel that India’s gross domestic product (GDP) growth will remain in the range of 6.5-7.5% over the next 12-18 months and GST will support the momentum for faster growth. The survey was conducted jointly with its Indian affiliate, ICRA, during their third annual India credit conference titled ‘Reforms, Sector Trends, Credit Risks & Opportunities’.

According to the estimates of the US-based agency, the economy will grow 7.5% in 2016-17 and 7.7% in 2017-18. It believes that economic growth will gradually accelerate to around 8% over the next 3-4 years. As per the survey, with the economic and institutional reforms in India, and further changes that could follow, India will likely grow faster than similarly rated peers over the next 12-18 months despite a short-term drag caused by demonetization.

Talking about impact of Goods and Services Tax (GST), Moody’s said that over the medium term, the GST will contribute to productivity gains and faster GDP growth by making it easier to do business, thereby unifying national markets and enhancing India's attractiveness as a foreign investment destination. It will also help facilitate government revenue generation by improving tax compliance and administration and with both factors positive for India's credit profile, which is constrained by a low revenue base.

The rating agency also said that the banks’ asset quality can deteriorate due to their exposures to certain sectors such as power, steel and infrastructure, the formation of new non-performing loans (NPLs) will be slower than in the past two to three years because of the banks' recognition of a large amount of NPLs. On the other hand, it maintained a stable outlook on India’s conventional power sector, reflecting improvements in domestic coal production, which moderate risks to fuel supply.

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