Economy

Economic Slowdown: Moody's Lowers India's Outlook to 'Negative' From 'Stable'

The agency said the change reflects increasing risks that economic growth will remain materially lower than in the past.

New Delhi: Moody’s Investors Service has changed the outlook on India’s ratings to ‘negative’ from ‘stable’, saying there was increasing risks that economic growth will remain materially lower than the past.

The rating company affirmed the nation’s foreign issuer rating at Baa2, the second-lowest investment grade score.

“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), have increased the probability of a more entrenched slowdown, it said.

“Moreover, the prospects of further reforms that would support business investment and growth at high levels, and significantly broaden the narrow tax base, have diminished,” it said.

According to reports, the agency said investors will be watching India’s gross domestic product data for “signs of further, long-lasting weakness”. Moody’s said this could result in another negative shift.

Other agencies such as Fitch Ratings and S&P Global Ratings still hold India’s outlook at stable. However, S&P Global Ratings recently warned that “risks of contagion are rising in the Indian financial sector”.

(With PTI inputs)