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Moody's cuts India outlook to 'negative', Govt says macro stats strong
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SME Times News Bureau | 08 Nov, 2019
Global rating agency Moody's Investors Service on Friday cut India's
outlook from 'stable' to 'negative' reflecting increasing risks to the
country's economic growth and the government's failure in addressing
long-standing economic and institutional weaknesses.
The
government however, said that India continues to be among the fastest
growing major economies in the world, and its relative standing remained
unaffected. BSE Sensex was down 168.17 points at 10.45 a.m.
Moody's
only adds to the growing list of global agencies, including the Reserve
Bank of India, that have downgraded the India growth story for the same
reasons. Fitch Ratings and S&P Global Ratings still hold India's
outlook at 'stable'.
Moody's also affirmed India's Baa2
foreign-currency and local-currency long-term issuer ratings. Baa2 is
the second-lowest investment grade score, and the agency said it could
downgrade the nation if fiscal metrics deteriorate materially.
Warning
that India could be heading for a debt trap and recessionary phase, the
agency said it doesn't expect the credit crunch among non-bank
financial institutions, the main source of consumer loans in recent
years, to be resolved quickly.
At a six-year low, India's
economy grew only 5.0 per cent year-on-year between April and June, its
weakest pace since 2013, as consumer demand and government spending
slowed amid global trade frictions.
Backing its other ratings for India, the agency said it estimates that the country's growth slowdown is in part long-lasting.
However,
the Finance Ministry rejected the claim, saying: "India continues to be
among the fastest growing major economies in the world, India's
relative standing remains unaffected. IMF in their latest World Economic
Outlook has stated that the Indian economy is set to grow at 6.1 per
cent in 2019, picking up to 7 per cent in 2020. As India's potential
growth rate remains unchanged, assessment by IMF and other multilateral
organisations continue to underline a positive outlook on India."
"The
government has undertaken a series of financial sector and other
reforms to strengthen the economy as a whole. The government has also
proactively taken policy decisions in response to the global slowdown.
These measures would lead to a positive outlook on India and would
attract capital flows and stimulate investments.
"The
fundamentals of the economy remain quite robust with inflation under
check and bond yields low. India continues to offer strong prospects of
growth in the near and medium term," the Finance Ministry add.
The
downgrade now puts additional pressure on India, which tried to revive
demand in the economy in September with an unexpected cut in corporate
taxes. But chances of more such reforms have diminished, and Moody's
expects the government to struggle to narrow its deficit or contain a
growing debt burden.
According to Moody's, "investors and rating
agencies will closely monitor the nation's gross domestic product data
(for Q2) for signs of further and long-lasting weakness, which could
result in another negative shift. Stabilisation in the non-bank
financial sector, meantime, would be credit positive and could flag less
risk of negative spillover into banks".
"Moody's decision to
change the outlook to negative reflects increasing risks that economic
growth will remain materially lower than in the past, partly reflecting
lower government and policy effectiveness at addressing long-standing
economic and institutional weaknesses than Moody's had previously
estimated, leading to a gradual rise in the debt burden from already
high levels," the rating agency said in a statement.
"While
government measures to support the economy should help to reduce the
depth and duration of India's growth slowdown, prolonged financial
stress among rural households, weak job creation, and, more recently, a
credit crunch among non-bank financial institutions (NBFIs), had
increased the probability of a more entrenched slowdown," it said.
Moody's
has also cut India's GDP growth forecast for the current year to 6.2
per cent, citing factors such as weak hiring, distress among rural
households and tighter financial conditions.
Almost every major
global financial institution has trimmed India's growth forecast ever
since the country's GDP growth rate slipped to a six-year low of 5 per
cent in the April-June quarter and the Reserve Bank of India (RBI)
slashed GDP growth estimate for the current fiscal to 6.9 per cent from
the previous estimate of 7 per cent, in the wake of slowdown in demand
and investment.
The International Monetary Fund (IMF) last month
slashed India's GDP growth rate projections to 6.1 per cent from the 7
per cent it forecast in July.
S&P Global Ratings last month
also lowered India's Gross Domestic Products (GDP) forecast to 6.3 per
cent for the current financial year from 7.1 per cent projected earlier,
on the back of decline in private consumption.
"India's slump
is deeper and more broad based than we expected. In the March-June
quarter, the economy expanded by just 5 per cent, below potential, which
we estimate to be north of 7 per cent. Most alarming has been the
precipitous decline in private consumption growth that had been the
engine of the economy in recent years - down to about 3 per cent in the
March-June quarter," the global rating agency said in a recent report on
the Asia-Pacific region.
On the government's effort to revive
economy through cut in corporate taxes, it said it would cost the
exchequer 0.7 per cent of the GDP, though the net impulse would be
smaller, with the government eliminating some exemptions.
The
Asian Development Bank had in July slashed India's growth projection to
6.5 per cent from 7 per cent for the current year on the back of fiscal
shortfall concerns.
The World Bank has cut India's GDP growth
for 2019-20 to 6 per cent in its latest South Asia Economic Focus
report. "India's cyclical slowdown is severe," said the report. It has
projected the growth rate for 2020-21 at 6.9 per cent, and for 2021-22
at 7.2 per cent .
In April, the World Bank had forecast a growth
rate of 7.5 per cent for India, but in 2018, it pegged the rate lower at
6.8 per cent.
The indicators from other rating agencies started
coming in June, when Fitch Ratings cut India's growth rate projections
to 6.6 per cent from 6.8 per cent. Later on September 20, the
Organisation for Economic Co-operation and Development (OECD) also
revised its forecasts for India, lowering it by 1.3 percentage points
from its previous projection in May to 5.9 per cent.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
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66.20
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64.50 |
UK Pound
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87.50
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84.65 |
Euro
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78.25
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75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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