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Drop in commodity prices have helped India: Moody's

25 August 2015

A fall in commodity prices, particularly crude oil prices, and tighter fiscal and monetary policies have helped restore India's macro-economic balance over the last two years, Moody's said today.

"This improved balance offers the Indian economy and financial system some resilience to potential volatility in global capital flows in coming months," the rating agency said.

Moody's statement is expected to calm Indian market sentiments, weighed down by heavy selling by foreign investors over China concerns. Foreign portfolio investors have pulled out nearly Rs9,000 crore from stock markets, pressuring stock markets and the rupee, which is trading at a two-year low.

Moody's noted that India's macro-economic indicators have improved, with deficit and government debt to GDP ratio falling below 2009 levels. In addition, inflation and the current account deficit-to-GDP ratio have also declined from their recent peaks, it said.

India's GDP growth is likely to surpass the average for its peers, as it has over the last decade, the rating agency said.

Moody's added that recent and proposed policies will stabilise inflation, increase infrastructure investment and lower government debt in India.

 ''Policy progress is likely to be slow and unlikely to be reflected in near term economic indicators. However, if policies to improve India's operating environment are effectively implemented, and accompanied by a strengthening of institutions, their impact will improve the sovereign credit profile over the medium term," the rating agency said.

A reversal of the policy reform process, weakness in banking system, or a decline in foreign exchange reserves are the threats to India's rating, Moody's said.

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