The Hindu Business Line : `India's external financial position stronger than peers'

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`India's external financial position stronger than peers' — Moody's projects 6.5 pc annual growth

Our Bureau

New Delhi , April 6

PROJECTING a "vibrant growth outlook" for the country, Moody's has said the country's economy is proving to be stronger than its peers enjoying the similar Baa3 foreign currency rating.

"The country's external financial position is consistent with or even stronger than its Baa3 peers," Moody's has said in its annual report on India.

The rating agency has said the country's Baa3 foreign currency ceiling for debt and stable outlook reflect strong external liquidity and a vibrant growth outlook.

Moody's has projected the economy to grow at an average annual rate of 6.5 per cent in the coming years. It has said though this would mean a slight slowing down from the growth in the current fiscal, it would nevertheless be a "respectable" rate.

"Even at just 6.5 per cent, India is likely to attract much more capital going forward than has been the case historically," Moody's has said.

It has said the growth trend would be difficult to maintain "in the absence of increased investment in human and physical infrastructure and a fiscal adjustment that would leave more room for private investment to expand."

The report also feels that the formation of the new Government after the forthcoming elections could give a further impetus to correct the worsening fiscal situation and to reforms. "Moody's expects that the next administration will be favourably disposed to additional economic adjustments, to the extent that reforms are given credit for recent economic buoyancy. Hopefully, this will include more aggressive fiscal tightening," the report has said.

The weak fiscal situation has been blamed for the lower rating of the domestic currency. "The weak fiscal situation is the primary reason why the Government's domestic currency rating is Ba2, two notches below the foreign currency rating. The domestic currency rating also carries a negative outlook," Moody's has pointed out.

It has said on the external front, workers' remittances and software and other services export are expected to offset the robust import demand and keep the current account in rough balance during the next two years.

"With high oil prices and substantial import growth, the current account surplus might revert to a modest deficit of up to one per cent of GDP in 2004-05, but this would be fully financeable. India's balance of payments also enjoys protection from controls on capital movements, which is reinforced by improving investment prospects. Still the Government's large reserve cushion is providing increasing room for a gradual easing of foreign borrowing restrictions and other capital market controls," Moody's has said.