Bold Reforms Needed for 6-7% GDP growth: Ratings Agencies

Posted By: Religare
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    Pitching for bold reforms, two top global rating agencies said the government needs to effectively implement its macro-economic and structural reform agenda for growing between 6-7 per cent in coming years, reported PTI.

    They, however, asserted that India remains better placed than other emerging economies across the world on various parameters.

    Bold Reforms Needed for 6-7% GDP growth: Ratings Agencies
    While placing India above its emerging market peers in terms of GDP growth, savings and investment rates, Moody's said that the country's high economic strength is a key source of sovereign credit support.

    Fitch, on the other hand, said that India would be the only BRIC (Brazil, Russia, India and China) country where growth picks up in 2014 to 5.6 per cent and accelerates to 6.5 per cent in 2015 and 6.8 per cent in 2016, owing to the government's reforms to the business environment.

    As per Moody's Investors Service Report, the outlook for India's rating would improve if fiscal, inflation and infrastructure metrics get better.

    "India's Baa3 government bond rating balances the strong growth potential of its large and diverse economy against high fiscal deficits, recurrent inflationary pressures, as well as regulatory and infrastructure constraints on competitiveness," it said.

    The stable outlook on the rating is based on an expectation that Indian authorities will continue with policy efforts to improve the macro-economic balance and address structural constraints on growth, it said.

    The report said that "the outlook for India's rating would improve if fiscal, inflation and infrastructure metrics were to move closer to Baa median scores."

    On the other hand, the outlook would weaken with a further deterioration in the fiscal position, or rising contingent liabilities from the state-owned banking sector, or a material decline in foreign exchange reserves coverage of external debt and imports.

    Although growth slowed significantly between 2011 and 2014, Moody's expects it to accelerate from between 5 per cent and 6 per cent over the next year to above 7 per cent thereafter, if global economic and financial conditions remain benign and the government effectively implements its macro-economic and structural reform agenda, it said.

    Although inflation has declined in recent months, India's inflation levels are high compared to rating peers.

    The report pointed to recurrent inflation, regulatory complexity and weak infrastructure as constraints on the rating that reflect institutional challenges.

    Recent policy measures announced by government and the central bank to address the challenges would enhance India's operating environment and improve competitiveness, Moody's added.

    India's fiscal deficits averaged 7.5 per cent of GDP over the last five years, it said adding, high government deficits raise domestic borrowing costs and thus increase the private sector's reliance on external borrowing.

    Read more about: gdp moodys
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