Moody’s Investors Service has cut India’s credit rating to negative from stable citing the central government’s growing debt burden.
The agency has raised doubts about the Narendra Modi government’s ability to address the rural distress and low job creation, media reports quoted William Foster, vice president of Moody’s Sovereign Risk Group. It has affirmed India’s foreign issuer rating at Baa2, the second-lowest investment grade rating.
“A prolonged period of slower economic growth would … potentially constrain the policy options to drive sustained high investment growth over the medium-to long term,” the reports quoted Foster as saying.
India, the world’s sixth largest economy with a GDP of $2.9 trillion, recorded 5% growth in June quarter, its slowest growth rate in more than five years. It was the fastest growing major economy for a brief period before slipping into an economic slowdown caused by a demand slump. The economy was growing at 6-7% annually since 2000. If the GDP growth does not see a revival, the Modi government will find it difficult to reduce its budget deficit, the rating agency said.
The finance ministry has played down the rating action saying IMF’s latest World Economic Outlook has forecast a growth rate of 6.1% for the Indian economy in 2019, and 7 % in 2020. Assessment by multilateral agencies continue to back India’s growth potential, the ministry said in a statement.
The government has undertaken a series of reforms to revive the economy. It has taken several policy measures to address the slowdown that would lead to positive results, the finance ministry statement said.