India’s growth to face domestic challenges in next two years

The Dollar Business Bureau

Economic growth rate of India in the next two years is likely to face challenges by dreary global demand and major leverage in certain corporate sectors, said Moody’s, a credit rating agency.

Presently, Moody’s with ‘Baa3’ rating has a positive outlook for the country.

However, the high leverage of corporates and credit demand will impact the growth in negative ways. Meanwhile, the impaired assets in banking system may negatively impact on credit supply, said Moody’s senior vice-president and manager, Marie Dion.

In FY16, despite domestic hurdles, India’s GDP climbed to 7.6% from 7.2% logged in FY15.

On the back of good monsoons with a push on consumption due to the recent 7th Pay Commission, the economy is expected to grow by 8% in the latest fiscal year.

Stating that lower nominal growth will affect revenues, Moody’s suggests the government needs to restrain spending to lower the deficit. The move may provide space for fiscal measures to back investments, potential, external or domestic shocks, which are posing risk to the forecast of 7.5% actual GDP growth in coming two fiscals.

Meanwhile, India’s medium term potential backed by gradual implementation of policy reforms will help to enhance business environment, productivity and infrastructure.

The financial services company in its report ‘Inside India; stated that even as the government passed a few credit positive measures over foreign investments and bankruptcy, the political frictions, which stalled the passage of GST and land acquisition policies, will slow down the movement of reform process.

The report further added that the political developments in the country amidst ambiguous global environment may keep the market outlook unstable.

Regarding the impact of Brexit on India, Moody’s said that the effects of vote to ‘Leave’ will be limited on India as exports to EU and UK account for 1.7% and 0.4% of India’s GDP, respectively.