Policy progress will be slow in India: Moody's

Sovereign credit profile can improve over the medium term if policies are effectively implemented, says Moody's

Global Rating agency Moody's today said policy progress in India is likely to be slow and unlikely to be reflected in near term economic indicators.

However, if policies to improve  operating environment are effectively implemented, alongwith strengthening of institutions, their impact will improve the sovereign credit profile over the medium term, Moody's said in a statement.

The positive outlook on India's sovereign rating reflects expectation that government policies will stabilize inflation, improve the regulatory environment. It may increase infrastructure investment and lower government debt ratios. 

India's sovereign rating  "Baa3" incorporates the strong growth potential of its large and diverse economy. It also factors in the government's high fiscal deficits and regulatory and infrastructure constraints on competitiveness, it said.

These comments are part of a report by Moody's which is an annual update to the market, and does not constitute a rating action.

The report points out that India's macro- economic indicators have improved over the last few years.

The general government deficit and government debt to Gross Domestic Product  ratio are both lower than their levels in 2009. In addition, inflation and the current account deficit-to-GDP ratio have also declined from their recent peaks.

Besides lower oil prices, the tighter fiscal and monetary policies have also helped restore India's macro-economic balance over the last two years, Moody's said. This improved balance offers the Indian economy and financial system some resilience to potential volatility in global capital flows in coming months.

Although it has slowed from peaks achieved a decade ago, India's GDP growth - which Moody's forecasts at 7% this year - is likely to surpass the average for its peers, as it has over the last decade, it added.