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Moody’s downgrades India from ‘stable’ to ‘negative’

By Lawrence Gash

Ratings agency emphasises country’s economic and institutional weakness

The ratings agency Moody’s has downgraded its forecast on India’s ratings from ‘stable’ to ‘negative’.

Two years ago, in a move seen as an endorsement of prime minister Narendra Modi’s promised reform, Moody’s upgraded the country’s sovereign rating. However the agency now states that it: “considers the prospects for effective implementation of such reforms to have diminished... In the absence of such reforms, structural constraints on productivity and job creation, will weigh further on India’s sovereign credit profile.

Modi had hoped to widen the country’s narrow tax base, however, Moody’s emphasised in its most recent report that such hopes were far from becoming a reality. India’s net tax collection in the six months up to September 30 was the lowest in the past five years. This weak tax revenue has damaged the government’s fiscal deficit target of 3.3 per cent of GDP.

The emerging Asian superpower is now emerging at a slower rate than previously predicted, with economic growth at a six-year low in Q2 of 2019. A number of financial crises has limited lending while the economy is struggling to create jobs for India’s growing and increasingly educated workforce.

Moody’s observed:

“While government measures to support the economy should help to reduce the depth and duration of India’s growth slowdown, prolonged financial stress among rural households, weak job creation, and, more recently, a credit crunch among non-bank financial institutions (NBFIs), have increased the probability of a more entrenched slowdown.

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