Monsoon, global financial volatility pose risk to India: Moody's

The monsoon and global financial volatility will pose additional risk to India's growth this year besides weak domestic credit conditions and tepid domestic demand, rating agency Moody's said on Wednesday.

Nonetheless, looking ahead to the next 18 to 24 months, Moody's said India's growth was likely to average around 7.5 percent.

The rating agency attributed the current subdued growth conditions on weak domestic credit conditions, tepid domestic demand and uncertain global growth.

"Since India's structural reform efforts will revive domestic investment and competitiveness over the medium - rather than near - term, the above factors will limit the pace of economic recovery in India over the next two quarters, while the monsoon and the potential for global financial volatility pose additional risks to growth this year," a report by Moody's Investor Service said.

The rating agency said the growth forecast was supported by India's structural advantages as well as by recent and planned improvements to its operating environment.

India's structural advantages include favourable demographics, a large economy - which offers investment opportunities - and economic diversity, as well as high savings and investment rates, the report said.

The report, however, said that the extent to which India's growth will outperform -- and for how long growth will remain high -- will depend on how infrastructure, regulatory and bureaucratic reforms are implemented "given that these measures are still at the early stages of design".

The recent reform efforts included the inflation targeting framework; regulatory simplification; and increase in limits for foreign direct investment in rail infrastructure and defence and insurance sectors.

It also included higher levels of public infrastructure investment; measures to promote financial savings; bills relating to mining; and measures to reduce banking system risk, such as counter-cyclical buffer requirements and liquidity coverage guidance.

Moody's also pointed out that even with robust growth, India's fiscal metrics are likely to remain weaker than those of similarly rated peers, and the social, political and economic challenges associated with low average incomes will persist over the medium term.