NEW DELHI: Credit rating agency Moody’s on Tuesday adopted a more cautious view of India’s growth, tempering down the upbeat forecast they made for public sector banks earlier, indicating that muted private investment and banking sector risks will remain a constraint on India's sovereign rating.
India's sovereign rating by Moody's stands at Baa3, the lowest investment grade — just a notch above junk status.
The report highlighted that staggered implementation of pay revisions by the central government, some state governments, and improved outlook for the rural economy post-monsoon, raises hope that consumption will continue to drive economic growth in FY2017.
However, fiscal constraints will limit the space available for direct infrastructure investment by the central government in FY2017.
Terming the reforms undertaken by the government as major booster for investor confidence and bolster growth potential, Moody’s said in the near-term, challenging budget targets could put pressure on spending.
“Moody's expects continuity in monetary policy, which is a credit positive," said Moody's Sovereign Group Senior VP Marie Diron.
The firms has predicted that private sector investment and growth in banking sector will continue to face structural hurdles and could result in contingent liability risks to the government in the near to medium term period.
It has also predicted that in the near-term, private investment will remain weak as corporates in investment-intensive sectors are burdened by elevated debt levels.
Further infrastructure gaps will continue to constrain investment and the rise in FDI will not make up for muted domestic investment, it cautioned.
Introduction of GST in 2017 will enhance revenue collection for the government over time, through better tax compliance and higher profits, as businesses save on tax administration costs," the report said.
Moody’s have suggested easing of restrictions on Foreign Direct Investment (FDI), which it feels could foster productivity growth in some sectors; the bankruptcy law, which, if credible, would enhance investor confidence, besides measures like improved access to bank accounts and those aimed at easing business starts.