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India’s recent economic, financial and fiscal measures will — if successfully implemented — sustain higher economic growth, Moody’s Investors Service said.
This could also address some of the constraints on India’s sovereign credit profile, the global rating agency said in a report titled ‘India: Recent Policy changes to support Growth Acceleration'.
The report analyses the potential impact of labour and investment policies that comprise the ‘Make in India’ campaign, financial inclusion measures, infrastructure development initiatives, clarity around inflation targets, as well as banking and energy sector reforms. Moody’s points out these measures are incremental rather than radical. However, it expects these incremental reforms to raise productivity, savings and investment growth. I
In addition, if policies lower fiscal deficits, stabilise inflation and strengthen banking sector, they will mitigate the macro-economic and financial risks to growth that have been evident in the last three years.
Sustain growth rates Higher investment and lower macro-economic imbalances could sustain growth rates of 7.5 per cent over the next 5-10 years. Such a result would be significantly higher than the 5-6 per cent growth Moody’s expects for India in 2015.
Since India’s sovereign rating already incorporates Moody’s assessment that its growth potential is high, such higher growth rates would be of limited (though positive) significance for India’s sovereign credit profile.
Still, the effective implementation of all the above policies could have further positive sovereign credit implications.
This will be the case if they demonstrate rising international strength or lower vulnerability to event risk.
Moody’s said it would revisit its assessment of India's institutional strength if inflation metrics, investment climate, policy predictability and transparency were to show sustained improvement.
Stronger fiscal, balance of payments and banking sector metrics would lower the country's vulnerability to event risk, the global rating agency has said.
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