Gold Prices In India Gain On Moody’s Downgraded Outlook On India

Andrew Cummings
November 8, 2019

The finance ministry pointed out to the International Monetary Fund's (IMF) latest World Economic Outlook, where the IMF projects India's economy to grow at 6.1 percent in 2019, picking up to seven percent in 2020.

Equity indices on Friday finished in red with the benchmark BSE sensex plunging over 300 points after global rating agency Moody's Investors Service lowered India's credit rating outlook from "stable" to "negative", saying it was increasingly likely that economic growth will remain lower than in the past.

The ratings agency said its action partly reflected government and policy ineffectiveness in addressing economic weakness, which in turn led to an increase in debt burden from already high levels. A finance ministry official, requesting anonymity, said while Moody's had upgraded India's upward growth cycle in 2017, the change in outlook within two years seems to be a knee-jerk reaction.

Moody's Investors Service, the investor-focussed arm of ratings agency Moody's, has downgraded its outlook on India to "negative" from "stable".

Even though the global rating agency has estimated that the country's growth slowdown is in part long-lasting, assessments by the IMF and other multilateral organisations continue to underline a positive outlook on India, the Finance Ministry stated.

Moody's retained India's foreign currency rating at Baa2, the second-lowest investment grade score, but said it could downgrade the nation if fiscal metrics deteriorated materially.

"The government has undertaken a series of financial sector and other reforms to strengthen the economy as a whole".

He added that significant cut in corporate tax for domestic firms will accelerate the investments in manufacturing, open up new employment opportunities and kick-start economic growth trajectory of the country.

Speaking at the Global Investors' Meet in Dharamshala on Thursday, Modi said that in today's global scenario, if India has stood firmly, it is because it has not allowed the fundamentals of the economy to be weakened. "These measures would lead to a positive outlook on India and would attract capital flows and stimulate investments".

"The fundamentals of the economy remain quite robust with inflation under check and bond yields low".

The entire PIB press release by the Ministry of Finance can be read here.

The rating agency said although the measures announced recently including policy rate cuts by the RBI, which will provide support to the economy, they are unlikely to restore productivity and real GDP growth to previous rates. India's growth outlook has deteriorated sharply this year, with a crunch that started out in the non-banking financial institutions spreading to retail businesses, auto makers, home sales and heavy industries. Stabilization in the non-bank financial sector, meantime, would be credit positive and could flag less risk of negative spillover into banks.

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