Demonetisation's 3rd anniversary: Moody's lowers India's outlook to 'negative'; economy's fundamentals robust, says govt

After Moody's Investors Service Friday changed its outlook on India's ratings to "negative" from "stable" over the country's economic slowdown, the government said it had undertaken series of reforms to strengthen the economy as a whole and that these measures would lead to a positive outlook on India. Incidentally, Moody's change in its India outlook coincides with the Prime Minister Narendra Modi-led NDA government's controversial demonetisation initiative on November 8, 2016. The Modi government's decision to declare 86 per cent of currency in use as invalid led to shutting down of several businesses in India, especially in the unorganised sector. Demonetisation also led to major job losses in several sectors.

Moody's in its report said its outlook for India partly reflects government and policy ineffectiveness in addressing economic weakness, which led to an increase in debt burden from already high levels, reported Reuters. The international ratings agency also said that it estimates that the country's growth slowdown is in part "long-lasting" while backing its other ratings for India.

The Ministry of Finance, in a statement, said that India continued to be among the fastest-growing major economies in the world. "India's relative standing remains unaffected. IMF in their latest World Economic Outlook has stated that Indian Economy is set to grow at 6.1% in 2019, picking up to 7 % in 2020. As India's potential growth rate remains unchanged, assessment by IMF and other multilateral organisations continue to underline a positive outlook on India," the ministry noted in the statement.

The ministry said that the Centre had proactively taken "policy decisions in response to the global slowdown". "These measures would lead to a positive outlook on India and would attract capital flows and stimulate investments," the statement said. The Centre said that India's fundamentals remained quite robust with inflation under check and bond yields low. "India continues to offer strong prospects of growth in the near and medium-term," it added.

Moody's on October 10 had also cut its growth forecast for India for the fiscal year to 5.8% from 6.2%, saying a weaker growth outlook will dampen the prospects for fiscal consolidation.

India's growth fell to a six-year low of 5% in the April-June quarter led by weak demand for consumer products and stress in the financial sector, prompting the central bank to cut its 2019-20 growth forecast to 6.1% last week from 6.9%.

SBI in its recent report had said that India's GDP is likely to slow further in Q2 to below 5 per cent amid a decline in consumption, weak investments and an under-performing service sector. The report also expects the FY20 growth rate to decline below 6 per cent as against a Reserve Bank of India (RBI) projection of 6.1 per cent. GDP growth had last slipped below the 5 per cent-mark in the January-March quarter of 2012-13 when it had touched 4.3 per cent.

Edited by Manoj Sharma

Also read: SBI report warns India's GDP growth may dip below 5% in September quarter; fiscal below 6%