Slow recovery in second half of 2014: Moody's

Assessment hinges on global growth, Lok Sabha poll results

Moody’s Investors Service said on Thursday that India’s economy is expected to recover slowly from the second half of 2014, provided global economy expands and the outcome of India’s general elections doesn’t affect the country’s economic growth.  

“On India, we expect a slow economic recovery in the second half of this year, if global growth increases. The outcome of national elections could also affect growth, depending on how it impacts sentiment and policies,” Moody’s Tom Byrne said in Singapore.

The comments came two days after the World Bank had projected the global economy to turn the corner and grow 3.2 per cent in 2014 against the estimated 2.4 per cent in 2013.

On Wednesday, International Monetary Fund (IMF) managing director Christine Lagarde had said global growth momentum had strengthened in the latter half of 2013, and should strengthen further in 2014, largely due to improvements in advanced economies.

Byrne said social welfare measures such as the Food Security Act will raise the government's medium-term expenditure commitment.

If Moody's expectations come true, the wait for a recovery for India's economy will get longer. Policy makers had expected the recovery to start from the second half of FY14. However, there are no signs of it happening for at least the third quarter of the year. Industrial production contracted both in October and November 2013, while exports which grew in double digits for four straight months till October 2013, expanded by a single digit in November and December 2013. Besides, widely-tracked HSBC purchasing managers' index (PMI) for services contracted in all the three months of the third quarter of FY14.

India’s economy grew by a decade-low rate of five per cent in 2012-13 and the growth is widely expected to either stick to this level or go even below in 2013-14. The economy expanded 4.6 per cent in the first half of 2013-14, compared to 5.3 per cent in the corresponding period of 2012-13.

After both consumer and wholesale prices inflation showed a deceleration for the month of December, Byrne said the rate of price rise in India and interest rates should decline. While the wholesale price index-based inflation declined to a five-month low of 6.16 per cent in December 2013 from 7.52 per cent in November 2013, consumer price index inflation fell to a three-month bottom of 9.87 per cent in December 2013. Even then, economists expected Reserve Bank of India to hold the policy rate as the central bank might wait to see stability in low inflation.

Moody’s assigns the lowest investment grade to India. It said outlook on ratings would remain stable in south Asia.

Even as fiscal situation of the Centre is not as rosy, the Moody's official said the government's debt structure in India reduces the risks coming from the public finance.

“Nonetheless, the structure of India's government debt -- which is owed mostly domestically, in domestic currency, at relatively low real rates, and at relatively long tenors -- has mitigated stress on the government's fiscal position," Byrne said.

In its earlier report, Moody's had said the structure of the government debt has supported the current ratings given by it to India, even as macro economic factors have worsened.

By structure, Moody's meant the domination of the rupee debt, low real interest rates and long duration of repayment.