Moody's Changes India's Outlook To 'Negative' From 'Stable' Citing Poor Economic Growth

While Narendra Modi government may call it just a phase, the global economic fraternity views the slowdown in the Indian economy as more of a long-term condition. On Friday, in yet another clear indicator of sluggish economic growth, Moody's Investors Service changed its outlook on India’s ratings from stable to negative. Moody's also affirmed India's Baa2 local-currency senior unsecured rating and its P-2 other short-term local-currency rating. “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 agency’s statement said. 

“India's economic growth has slowed materially, with real and nominal GDP growth falling to 5% and 8% year on year in April-June 2019, respectively. Moody's estimates that the growth slowdown is in part long-lasting. Moreover, compared with two years ago when Moody's upgraded India's rating to Baa2 from Baa3, the probability of sustained real GDP growth at or above 8% has significantly diminished,” Moody’s further said.

Moody’s also had sharp observation on condition of Indian banking sector. “With public sector banks still dealing with the legacy of non-performing loans accumulated at the beginning of the decade, credit supply is likely to remain impaired for some time, compounding the income shocks. With a per-capita income of around $7,900 on a purchasing power parity (PPP) basis in 2018, Indian households' capacity to absorb such negative shocks is limited,” it said.