International ratings agency Moody’s has changed its outlook on India from stable to negative, citing increasing risks that economic growth of Asia’s third-largest economy will remain “materially lower than in the past.”
It said the downgrade partly reflected lower government and policy effectiveness in addressing “economic and institutional weaknesses”, which led to a rise in the already high levels of debt burden.
“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 have increased the probability of a more entrenched slowdown.”
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The agency said it does not expect the credit crunch among non-bank financial institutions to be resolved quickly.
India’s finance ministry reacted to the statement by saying that the country “continues to be among the fastest growing major economies in the world. India’s relative standing remains unaffected.”
India’s economy grew five percent year-on-year between April and June, its weakest pace since 2013, as consumer demand and government spending slowed amid global trade conflicts. This prompted a number of rate cuts by the central bank, with the government introducing several measures (including a sharp cut in corporate taxes) to boost growth.
The finance ministry pointed out to the International Monetary Fund’s (IMF) latest World Economic Outlook, where the IMF projects India’s economy to grow at 6.1 percent in 2019, picking up to seven percent in 2020.
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The ministry said: “As India’s potential growth rate remains unchanged, assessment by IMF and other multilateral organizations continue to underline a positive outlook on India.”
The government has undertaken series of financial sector and other reforms to strengthen the economy as a whole, the ministry added.
India’s benchmark equity indices opened marginally lower on Friday, following reports of rating outlook cut. The Sensex fell 0.3 percent to 40,542.58 points, while Nifty was down 0.35 percent to 11,969.60 points.
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