Manufacturing sector to benefit due to falling commodity prices

The Dollar Business Bureau Sectors like automotives, manufacturing, infrastructure and power in India will benefit due to reduction in global commodity prices, said a Moody’s report. The report also said that recent policy changes by the government on coal mines, iron ore mining will benefit core sectors like metals, steel and power companies. While structural changes take place and economic conditions stabilise or improve, weak commodity prices may not support sectors that have exposure to oil. Moody's also said that the government's ability to push through the land acquisition bill and a unified goods and services tax will be crucial in maintaining positive policy momentum. In one of its earlier reports, Moody’s believed that recent measures to address inflation, keep external balances in check, simplify the regulatory regime for investors, increase foreign direct investment, and facilitate infrastructure development will reduce some of India’s sovereign credit constraints. Many of these measures are at relatively early stages of design and have yet to be implemented. According to Moody’s, the ability of policymakers to strengthen India’s sovereign credit profile to a level consistent with a higher rating will become apparent over the next 12-18 months. The report also mentioned that India’s banking system’s asset quality, loan loss coverage and capital ratios are relatively weak. This poses sovereign credit risks because of the banking sector’s role in financing growth as well the government’s deficits through its purchase of government securities, and the contingent liabilities due to the government’s ownership of a major portion of the banking sector. In the absence of any improvement in banking-system metrics over the coming months, India’s sovereign credit profile will remain constrained. Evidence over the coming months that policymakers are likely to be successful in their efforts to introduce growth-enhancing and growth-stabilizing economic and institutional reforms would lead to the rating being considered for an upgrade. On the other hand, the rating outlook would be revised to stable if economic, fiscal and institutional strengthening appeared unlikely, or banking system metrics remained weak or balance of payments risks rose, the report added.      

May 11, 2015 | 10:02 pm IST.