NEW DELHI: Moody’s Investors Service on Thursday cut India’s ratings outlook to “negative” from “stable”, citing increasing risks that growth in Asia’s third-largest economy will remain lower than in the past, Indian media reported.
The ratings agency said that 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.
Moody’s retained its foreign and local currency ratings at ‘Baa2’.
India is undergoing a significant slowdown. Its economic growth hit a six-year low in the April-to-June quarter, during which the economy grew 5% from a year ago.
An ongoing crisis in the finance sector has hamstrung lending, impacting investments, while recent policy reforms have left small-and-medium businesses reeling.
Moreover, the Indian economy is also struggling to create enough jobs for its workforce.
“While government measures to support the economy should help to reduce the depth and duration of India’s growth slowdown, prolonged financial stress among rural households, weak job creation, and, more recently, a credit crunch among non-bank financial institutions (NBFIs), have increased the probability of a more entrenched slowdown,” Moody’s analysts said in a report.
Moody’s said it does not expect the credit crunch among non-bank financial institutions to be resolved quickly.