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

In an official statement the finance ministry said India continues to offer strong prospects of growth in near and medium term

On Friday, worldwide rating agency, Moody's Investor Service cut India's credit rating outlook to negative, over mounting concerns over an economic slowdown.

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.

India's economy grew only 5.0% year-on-year between April and June, its weakest pace since 2013, as consumer demand and government spending slowed amid global trade frictions.

However, increased financial stress on rural households, weak job creation, and a credit crunch among non-bank financial institutions raised the possibility of a more entrenched slowdown, it said.

Fitch Ratings and S&P Global Ratings - the other two worldwide rating agencies - still hold India's outlook at stable.

To strengthen the economy, the government has undertaken series of financial sector and other reforms, said the statement by the finance ministry.

This cut in ratings comes nearly after two years when it had upgraded India's sovereign ratings.

"India continues to be among the fastest-growing major economies in the world, India's relative standing remains unaffected", the finance ministry said in a response to the outlook cut, adding that the economy's fundamentals remained "quite robust". "The central bank off late has been on a buying spree in spot but it would not want the rupee to move out of whack such that the volatility leads to concerns over capital inflows", forex advisory firm IFA Global said in a note.

More measures to kickstart economy on the cards?

The measures include a package for the real estate and the automobile sector as also slashing of corporate income taxes for domestic companies to 22 per cent from 30 per cent previously. How markets reacted: Equity indices were off to a slow start on Friday with the benchmark BSE sensex sliding almost 150 points and the broader NSE Nifty trading below the 12,000-mark. "There's a reasonable probability that that could happen, and this is a negative outlook so it gives them some time to play this out".

Moody's change in outlook for India made bullion traders flock to the safe-haven metal, pushing gold prices in India higher on Friday.

The agency, however, has retained India's credit rating at Baa2.



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