Moody’s Investor Service has lowered India’s credit ratings outlook to negative, saying its decision reflected increasing risks of a prolonged slowdown and rising debt.
The Indian Government responded on Friday by saying it had undertaken a series of the financial sector and other reforms to strengthen the economy and its fundamentals remained robust.
“India continues to offer strong prospects of growth in the near and medium-term,’’ a Finance Ministry statement said.
Moody’s said its decision, announced on Thursday, partly reflected “lower government and policy effectiveness at addressing long-standing economic and institutional weaknesses than Moody’s had previously estimated’’.
The agency kept the foreign and local currency long term issuer ratings unchanged at Baa2.
India’s economy grew by just five per cent year-on-year in the April to June quarter, marking the slowest pace of expansion for the economy since 2013.
The Reserve Bank of India in October revised downwards its GDP growth outlook for 2019-20 to 6.1 per cent from an earlier 6.9 per cent.
Moody’s changed outlook adds to the pressure faced by the Narendra Modi government to speed up economic growth in a country where millions still live in poverty.
Moody’s identified as the main reasons for sluggish growth financial stress among rural households and weak job creation along with a legacy of non-performing assets in the banking sector leading to a credit squeeze.
Moody said GDP growth and employment generation will remain constrained unless reforms directly reduced restrictions on the productivity of labour and land, stimulated private investment and sustainably strengthened the financial sector.
Fitch Ratings and S&P Global Ratings still hold India’s outlook at stable.