Indian economy unlikely to grow above 5-6% in near future: Moody's

09 May 2014

The Indian economy is unlikely to revert to the high growth path of 7-8 per cent and above in the immediate future even if the government pursues a strong reforms agenda, rating agency Moody's says in a report.

''Even if the new government pursues a strong reform agenda, the depth of the issues to be addressed means that India's economy is unlikely to return to the 7-8 per cent growth rates in the near future,'' the Moody's report said.

Moody's assessment follows finance minister P Chidambaram's comments on Th­ursday that the country co­uld revert to high growth if it continued to encourage foreign and domestic investment.

He said the top 23 public enterprises would invest a total of Rs1,33,000 crore this financial year while overseas investors are expected to have brought $27 billion during 2013-14.

According to Moody's the government in India, as in other emerging economy Brazil, has little leeway to provide fiscal stimulus in order to offset a possible slowdown in capital flows.

Moody's expects India's debt-to-GDP ratio to rise to more than 65 per cent this fiscal.

While portfolio flows into India so far this year have been good, Moody's said, ''Some of these capital inflows may be based on expectations of reforms after the parliamentary elections. These expectations could be disappointed if a coalition government lacks the political flexibility to pass reforms.''

Moody's expects India's economic growth in 2014 to be 4.5 to 5.5 per cent and 5-6 per cent in 2015 against the annual growth rate of 4.5 per cent in 2012 and 2013.

"Growth prospects for India are similarly hampered by a lack of reforms in recent years. The country is also vulnerable to capital outflows given a history of sizable current account deficits (CAD)," it said.

"Although the CAD was reduced to only 0.3 per cent of GDP at the end of 2013, some of that narrowing is unlikely to be sustained once restrictions on gold imports are lifted." the report noted.

With inflation still over 8 per cent, Moody's said there is no chance of the Reserve Bank easing its monetary policy in the short term, instead it may tighten it further.

The Organisation for Economic Cooperation and Development (OECD) earlier this week estimated India to grow at 4.9 per cent in 2014 and 5.9 per cent in 2015.

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