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Economy

India's outlook cut to 'negative' as Moody's warns of growth risks

Rural strain, weak job creation and credit crunch signal 'entrenched slowdown'

India's Prime Minister Narendra Modi attends the ASEAN-India Summit on the sidelines of the Southeast Asian bloc's meetings in Bangkok on Nov. 3.   © Reuters

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.

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 ratings agency said. 

The Nifty 50 index fell 0.4% in early trade on Friday, while the rupee weakened to 71.31 against the dollar, versus Thursday's close of 70.965.

Moody's retained its foreign and local currency ratings at 'Baa2'.

India's economy grew only 5.0% year-on-year between April and June, its weakest pace since 2013, as consumer demand and government spending slowed amid global trade frictions.

This prompted a slew of rate cuts by the central bank, while the government rolled out several measures, including a sharp cut in corporate taxes, in a bid to boost growth.

"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 have increased the probability of a more entrenched slowdown," Moody's said.

The ratings agency does not expect the credit crunch among non-bank financial institutions to be resolved quickly, it added.

After the corporate tax cuts and lower nominal GDP growth, Moody's now expects a government deficit of 3.7% of GDP in the fiscal year ending in March 2020, compared with a government target of 3.3% of GDP.

(Reuters)

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