While acknowledging that both structural, as well as cyclical factors have led to the slowdown in India's growth, Gene Fang, associate MD - Sovereign Risk Group at Moody's Investors Service, said that the structural causes are likely to persist longer.
“Our own projection would have a slight rebound in real GDP growth going into next year but what is concerning for us is there is some of the structural factors driving the slowdown on growth which may even persist longer and we are in a situation where the recovery is dragged... that does raise risk to the overall credit profile,” said Fang in an interview with CNBC-TV18.
Moody’s changed its outlook on India to “negative” from “stable” amid concerns that the country’s economic growth will remain "materially lower than in the past". The outlook partly reflects government and policy ineffectiveness in addressing economic weakness, which led to an increase in debt burden from already high levels, the agency said.
Talking about government measures, Fang said, “The government measures will have an effect and that’s probably behind incorporated into our expectations for pickup in growth going into next year, but at the same time there is a lot of risk to that growth forecast and there are harder and much structural reforms that remain to be done.”
“There are a lot of reforms on the fiscal side on which we have seen steps being taken and perhaps more on the fiscal side in terms of bringing down the overall debt trajectory would be positive,” added Fang.
About the rating change, Fang said, “Some of the more structural issues that are a challenge to growth right now include a slowdown in consumption, potential credit crunch in the BFI sector."
"We see next year GDP estimate at 6.6 percent," added Fang.
When asked about why India is so negative from Moody’s angle, he said, “Compared to its peers at the 'Baa' level, India does have a very high debt to GDP, it’s at about 67 percent. Peers are more in 50 percent range."