India’s credit ratings outlook was cut to negative from stable by Moody’s Investors Service today, on concerns that the government will not be able to help revive economic growth. Moody’s cited the country's growing debt burden and the government’s struggle to contain the budget deficit.
Moody's has forecast a fiscal deficit of 3.7 per cent for financial year 2019-20 (FY20), which is higher than the government’s target of 3.3 per cent. The foreign currency rating was retained at Baa2, the second-lowest investment grade score.
India’s growth outlook has deteriorated sharply this year, with the crunch that started out in the shadow banking industry spreading to retail businesses, the auto sector, home sales and heavy industries.
Economists say that though Moody's cut is not really justified at this point, the move is a grim reminder of the state of the economy and the need to accept that all is not well. Given the economic slump, most economists have lowered the growth estimates and expect the RBI to be more aggressive in cutting rates going ahead.
But there is a clear dichotomy between rating agencies assessment and stock market performance. While rating agencies always take into account the present situation, the markets are always forward-looking and believe that the Indian economy outlook is not that bleak.
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