Indian economy unlikely to witness 7-8% growth even after strong reforms: Moody’s

Global rating agency Moody’s in its latest report has stated that India will not be able to revert to high economic growth path of 7-8 percent anytime soon, even if the new government formed after the general election pursues strong reforms agenda. The report added that India’s government has only limited opportunities to provide some fiscal stimulus to offset a possible slowdown in capital flows. The global credit rating agency has forecast India’s economic growth at 4.5-5.5 percent in 2014 and 5-6 percent in 2015. Indian economy’s growth slowed down to a decade low at 4.5 percent in FY13 and 4.6 percent during the first three quarter of FY14. The Moody’s report highlighted that Indian economy is hampered by lack of reforms in recent years and is now vulnerable to capital outflows. It expects the debt-to-GDP ratio to rise to more than 65 percent this year. Although, the country witnessed significant improvement in current account deficit (CAD), this curtailing is unlikely to be sustained once restrictions on gold imports are lifted. During the April-December’FY14, CAD stood at $31.1 billion (2.3% of GDP) versus $69.8 billion (5.2% of GDP) reported in the same period of previous fiscal year.  On inflation front, the report added that high inflation, at more than 8 per cent indicated that the central bank has no room to ease monetary policy in the short term and may even tighten the policy rates further. The rating agency further noted that during the past two months, the foreign investments in India increased at brisk pace, which indicate that international investors continue to perceive attractive investment opportunities in India. Capital flows increased amid expectations that new government will take strong reforms to boost the economic growth. However, these expectations could be disappointed if a coalition government lacks the political flexibility to pass reforms.