Economy has improved, but pace slow, says Moody's

It also said the recent reforms initiated by the government would enhance the country's medium-term macroeconomic stability

Reforms have improved India’s macroeconomic environment but the pace has been slow, which is expected given the institutional structures in the country, said Marie Diron, senior vice-president, sovereign risk group, Moody’s Investors Service.

Diron, also the chief sovereign analyst for India, said the recent reforms initiated by the government — such as the goods and service tax (GST), the bankruptcy law and the transition to an inflation targeting regime — would enhance the country's medium-term macroeconomic stability. Diron is scheduled to meet finance ministry officials on Wednesday.

The passing of the GST and the bankruptcy law were credit positive, though the benefits were likely in the medium term, she said, but listed six pending reforms that were required — the land acquisition Bill, labour law reforms, significant infrastructure investment, tangible benefit from Make in India initiative, tax administration and public sector banking reforms. 

While the macroeconomic situation has improved with inflation moderating, Diron said growth would continue to be driven by consumption, as investment was still sluggish. Risks to growth outlook, she said, stemmed from the country’s high debt levels and the financial health of public sector banks. Speaking at a joint Moody’s-Icra briefing, Aditi Nayar, senior economist at ICRA, said economic growth would pick up in 2016-17 to 7.9 per cent, driven by consumption, which would get a fillip from the proceeds of the Pay Commission. 

Retail inflation was expected to be in the 4-5 per cent range till November. This could create room for the Reserve Bank of India to cut rates later this year. "We expect 0.25 per cent cut in repo rate in the policy review in December. Once the monetary policy committee is set up, future rate cuts would depend on the time frame they adopt to reach the median point of the 2-6 per cent inflation target," said Nayar.