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 added.