Ratings agency Moody's Investors Service is likely to retain its ‘stable’ outlook on India, expecting economic growth to improve on the back of consumer demand, although it expects India's fiscal deficit to exceed 5.1% level this year despite the recent moves by the government to rein in deficit and has said that the recent reform measures won't improve India's credit profile and only serve as sentiment boosters, as the country is still constrained by its fiscal deficit.
Moody's, which has a Baa3 rating on the sovereign, expects India’s growth to turn around in the medium term as private investments pick up, driven mostly by domestic consumption. The assumptions are much in contrast to some other rating agencies, Standard & Poor's and Fitch Ratings, both of which had cut their outlook on India to “negative” this year, citing concerns about the pace of reforms.
The ratings agency however said that the recent government actions show that the government can take politically unpopular decisions to limit deficit. But Moody's will wait to see more efforts towards ensuring that India’s fiscal position are less vulnerable to slowdown in economic growth. The Indian government has recently taken lots of politically unpopular reforms measure, including hike in diesel prices, FDI in retail and aviation and a bailout for the power sector.
Government’s concerns about the rating downgrade is likely to sooth with the Moody’s stand as an outlook downgrade to negative from stable puts a country at the risk of having its rating lowered, which would make borrowings costlier and can hamper investment inflows.
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