Govt must deliver on promises for higher growth: Moody's

Raising a red flag over "empty promises" of the Modi government, global giant Moody's today said delay in key reforms is denting business confidence and the foreign investors are wary of investing in India.
While pegging India's true growth potential at near 10 per cent, Moody's also warned that "GDP growth is not likely to rise above 7.5 per cent if the government continues to over-promise and not deliver".
It further said that the "jury is still out on Prime Minister (Narendra) Modi", but the government's failure to deliver on promised reforms is a major impediment to a broader economic growth momentum in the country.

In a report titled 'India's Outlook: Waiting for Reforms to Fuel Growth', Moody's Analytics also cautioned against tampering with the independence of RBI in deciding on interest rates, saying it would hurt India's economic prospects, even as it hoped that the central bank could effect two more 25 basis points rate cuts in 2015 to boost growth.
A new draft of the Indian Financial Code has suggested creation of an interest rate-setting panel, where majority of seven members will be nominated by the government and the RBI chief would not have any veto power over the panel's decision.
"We believe that a government-elected panel undermines the RBI's independence. Moving to the new model would severely dent the RBI's competency: Credibility would be lower, politics would drive decisions, and transparency would be reduced," the report said.

Moody's Analytics is the economic research analysis unit of Moody's Corporation and is independent of Moody's Investor Service, the credit rating agency of the US-based group.
"Overall, we believe that tampering with the central bank's independence would make it difficult to anchor inflation expectations. This would weigh on India's economic prospects, particularly financial market stability," it added.
Terming this move a "dangerous road ahead", the report said "a recent draft bill could undo the RBI's good work". It also added that India's monetary policy has been effective with Governor Raghuram Rajan at the helm and hoped that given the criticism of the draft Indian Financial Code bill, it is unlikely to pass Parliament.