Indian rural economy to remain subdued in 2015-16: Moody’s

Chennai, June 30 (IANS) Credit rating agency Moody’s Investors Service (MIS) on Tuesday said it expects India’s rural economy to remain subdued through the fiscal year ending March 2016.

It said that this forecast will materialise, particularly, if the risk of below-average monsoon rainfall takes shape.

“A sustained soft patch for India’s rural economy would weigh on private consumption and non-performing assets in the agricultural sector, a credit negative for the sovereign and banks,” said Rahul Ghosh, MIS vice-president and senior research analyst.

The analysis was published in the latest edition of Inside India, a quarterly publication of MIS.

According to the report, rural income growth in India has been stuck in the mid to low single digits in 2015 to date, well off the 20 percent-plus rates clocked in 2011.

The slower rural income growth is partly the result of increased fiscal restraint by the central government, that MIS believes is unlikely to change in the coming quarters.

The publication also includes key takeaways from a number of audience polls carried out during the first annual Moody’s and ICRA India Credit Conference in Mumbai, that took place in May.

According to the poll results, the consensus view on India’s economic growth prospects is relatively optimistic, very much in keeping with Moody’s baseline scenario of headline economic expansion of 7.5 percent in FY2016.

This forecast represents the highest projection amongst G20 economies, and provides a key pillar of support for the Baa3 sovereign rating and positive outlook.

“Notwithstanding these growth expectations, our polling results pointed to some disappointment amongst the audience with regard to the pace of reform under the administration of Prime Minister Narendra Modi, and increasing concerns about the risk of policy stagnation,” MIS said.

Specifically, almost half of the poll respondents identified sluggish reform momentum as the greatest risk to India’s macroeconomic story.

According to MIS, the multi-party, federal democracy in India underpins a gradual pace of policy implementation.

While many of the policies are positive for India’s institutional strength, the direct impact of growth-enhancing reforms is only likely to take full effect over a multi-year horizon.

For example, plans to cut the country’s corporate tax rate to 25 percent from the existing 30 percent over the next four years will be credit positive for all Indian corporates insofar as it will reduce their tax expenses and increase their competitiveness over the medium term.

Related Posts

Leave a Reply