General elections could make or mar Indian economy: Moody’s

Global ratings agency Moody's Investors Service today said India's economic recovery is likely to be slow in the second half of 2014, and the outcome of the general elections due by May could have an impact on the country's growth prospects.

For South and Southeast Asia as a whole, Moody's said that sovereign ratings will be largely stable in 2014, reflecting its expectation that global growth prospects will improve while global risks will decline.

On India it said, "We expect a slow economic recovery in the second half of this year, if global growth increases."

Moody's Sovereign Risk Group senior vice president and manager Tom Byrne said that "The outcome of national elections this year could also affect growth, depending on how it impacts sentiment and policies."

The World Bank has projected that India's economy to grow at over 6 per cent in 2014-15 and 7.1 per cent by 2016-17 as global demand recovers and domestic investment increases (See: World Bank projects India's growth at over 6% in 2014-15).

India's economic growth slipped to a decade's low of 5 per cent in 2012-13.  Growth in the first half of 2013-14 is 4.6 per cent, but the government expects the growth for the entire fiscal ending March 2014 to be at 5 per cent. A further pick up is also expected in the coming months.

The government hopes to contain fiscal deficit at 4.8 per cent of GDP in the current fiscal and reduce it further to 3 per cent by 2016-17.

Moody's further projected India's inflation and interest rates to decline during the year. The agency has assigned India a 'Baa3' rating with a stable outlook. 'Baa3' implies medium investment grade with moderate credit risk.

The rating agency said India's fiscal deficit would remain higher than those of similarly rated countries in 2014.

"Social welfare measures, for instance, such as the Food Security Act passed last year, will raise the government's medium-term expenditure commitment," Byrne said.

Moody's further said the structure of India's government debt - which is owed mostly domestically, in domestic currency, at relatively low real rates, and at relatively long tenors - has mitigated stress on the government's fiscal position.