Disappointment creeping in over Modi govt's reform pace, says Moody's

Flagging subdued rural economy as a ‘credit negative’ for India’s sovereign rating, global giant Moody’s on Tuesday said there are growing concerns about risk of policy stagnation and “some disappointment” has emerged over the pace of reforms under the Modi government.

In its latest ‘Inside India’ report, Moody’s Investors Service said the consensus view on India’s economic growth prospects is relatively optimistic and in line with Moody’s baseline forecast of 7.5 per cent expansion in current fiscal.

“Forecast represents the highest projection amongst G20 economies, and provides a key pillar of support for the Baa3 sovereign rating and positive outlook,” it said.

This is the lowest investment grade rating, but a ‘positive’ outlook indicates room for further upgrade.     

However, the results of the latest polls conducted by it has showed “some disappointment...with regard to the pace of reform under the administration of Prime Minister Narendra Modi, and increasing concerns about the risk of policy stagnation.”

“Specifically, almost half of the poll respondents identified sluggish reform momentum as the greatest risk to India’s macroeconomic story.”

Moody’s said “the multi-party, federal democracy in India underpins a gradual pace of policy implementation” and many of the policies are positive for India's institutional strength.

However, the direct impact of growth-enhancing reforms is only likely to take full effect over a multi-year horizon, it said.

Moody’s further said it expects India's weakened rural economy to remain subdued through the fiscal year ending March 2016, particularly if the risk of below-average monsoon rainfall materialises.

“A sustained soft patch for India's rural economy would weigh on private consumption and non-performing assets in the agricultural sector, (which is) a credit negative for the sovereign and banks,” Moody’s vice-president and senior research analyst Rahul Ghosh said.