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Ahead of the crucial Winter Session of Parliament that starts on Thursday, Moody’s Investor Services has cautioned that a loss of momentum in carrying forward reforms such as the goods and services tax and land acquisition laws could hamper investments and bring down economic growth to below 6 per cent.
“The Modi administration, so far this year, has been unable to enact legislation on key reforms, including a unified goods and services tax and the Land Acquisition Bill….
It seems highly unlikely that the major reforms will get enacted by the Upper House of the Indian parliament where the ruling coalition is in minority,” said Moody’s Vice-President and Senior Credit Officer Vikas Halan said, adding that this would hamper investment amid weak global growth.
The government is hoping to go through with the Constitutional Amendment Bill for the roll out of GST from April 1, 2016 in the forthcoming Parliament session.
While falling global commodity prices and moderating inflation will help corporates cut down input and borrowing costs, “potential headwinds loom from a loss of reform momentum,” Halan warned.
The government is unlikely to win a majority in the Rajya Sabha if it keeps losing State elections like it did recently in Delhi and Bihar, it said.
In its 2016 outlook presentation for Indian non-financial corporates, Moody’s has pegged India’s GDP growth at 7.5 per cent in 2016-17, adding that it would improve corporate cash flows and support business growth.
“Further government measures that could sustain GDP growth at 8 per cent or more, leading to a broad-based improvement in corporate credit metrics,” it said, adding that “upside factors” also include an improvement in global macro economic outlook that would also stabilise commodity prices and credit markets.
But it warned that corporates would remain vulnerable to the volatile Indian rupee as against the US dollar and to low commodity prices, which has in turn led to a sharp decline in external trade.
“Higher interest rates brought on by rising inflation and exchange rate volatility, resulting in a tight funding environment is a factor,” could also impact companies, it pointed out.
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