Blow to India: Moody's cuts India's credit rating outlook to negative; Govt rebuts
New Delhi: In a blow to India, Moody's Investors Service has cut country's credit rating outlook to negative - the first step towards a downgrade, saying the government has been partly ineffective in addressing economic weakness, leading to rising risks that growth will remain lower.
While foreign currency rating was retained at Baa2 - the second-lowest investment grade score, Moody's projected fiscal deficit of 3.7 per cent of gross domestic product in the year through March 2020, a breach of the government's target of 3.3 per cent, as slower growth and a surprise corporate-tax cut curbs revenue.
In a statement, Moody's said the outlook partly reflects government and policy ineffectiveness in addressing economic weakness, which led to an increase in debt burden which is already at high levels, the rating agency said.
India's economy grew by 5 per cent between April and June, its weakest pace since 2013, as consumer demand and government spending slowed amid global trade frictions.
The government reacted strongly, saying the fundamentals of the economy remain quite robust and series of reforms undertaken recently would stimulate investments.
India's growth outlook has deteriorated sharply this year, with a crunch that started out in the non-banking financial institutions (NBFIs) spreading to retail businesses, car makers, home sales and heavy industries.
"Moody's decision to change the outlook to negative reflects increasing risks that economic growth will remain materially lower than in the past, partly reflecting lower government and policy effectiveness at addressing long-standing economic and institutional weaknesses than Moody's had previously estimated, leading to a gradual rise in the debt burden from already high levels," the rating agency said.
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 NBFIs, have increased the probability of a more entrenched slowdown, it said.
"Moreover, the prospects of further reforms that would support business investment and growth at high levels, and significantly broaden the narrow tax base, have diminished," it said.
"A prolonged period of slower economic growth would dampen income growth and the pace of improvements in living standards, and potentially constrain the policy options to drive sustained high investment growth over the medium to long term," it added.
Fitch Ratings and S&P Global Ratings -- the other two international rating agencies -- still hold India's outlook at stable.
Finance Ministry in a statement sought to counter the lowering of the outlook by Moody's saying, "India's relative standing remains unaffected."
It said the Government has undertaken series of financial sector and other reforms to strengthen the economy as a whole.
"Government of India has also proactively taken policy decisions in response to the global slowdown. These measures would lead to a positive outlook on India and would attract capital flows and stimulate investments," it said.
"The fundamentals of the economy remain quite robust with inflation under check and bond yields low. India continues to offer strong prospects of growth in the near and medium-term," the Finance Ministry statement added.
The lowering of outlook will put additional pressure on Finance Minister Nirmala Sitharaman to take more measures to kickstart the economy.
With her maiden Budget for 2019-20 seemingly failing to address the widening problems in the economy, she took to announcing measures aimed at reversing the slowdown within a month of Parliament approving her Budget.
The measures include a package for the real estate and the automobile sector as also slashing of corporate income taxes for domestic companies to 22 per cent from 30 per cent previously. Also, the Reserve Bank of India has already cut interest rates five times this year, though lenders have not passed on that easing to customers.
Moody's said it doesn't expect the credit crunch among non-bank financial institutions, which were the main source of consumer loans in recent years, to be resolved quickly.
It said the negative outlook indicates that an upgrade is unlikely in the near term. "Moody's would likely change the rating outlook to stable if the likelihood that fiscal metrics would stabilise and improve over time..."
The rating agency said although the measures announced recently including policy rate cuts by the RBI, which will provide support to the economy, they are unlikely to restore productivity and real GDP growth to previous rates.
"In turn, a prolonged period of slower economic growth would dampen income growth and the pace of improvements in living standards, and potentially constrain the policy options to drive sustained high investment growth over the medium to long term," it added.
Moody's said its Baa2 rating balances the country's credit strengths including its large and diverse economy and stable domestic financing base for government debt, against its principal challenges including high government debt, weak social and physical infrastructure and a fragile financial sector.
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UDF leaders see local body poll trends as pointer to 2026 Assembly elections in Kerala
Thiruvananthapuram (PTI): Buoyed by the strong performance of the Congress-led UDF in the local body polls, KPCC president Sunny Joseph said on Saturday that the front's results indicated the people had rejected the LDF government.
According to early trends, the UDF was leading in more grama panchayats, block panchayats, municipalities and corporations than the LDF.
The local body polls were held in two phases in the state earlier this week.
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Speaking to reporters here, Joseph said the people of Kerala had extended their support to the UDF.
"We could expose the LDF government’s anti-people stance and the people understood it. The LDF’s fake propaganda was rejected by the people. The UDF is moving towards a historic victory," he said.
He said a united effort, proper preparations, good candidate selection and hard work had resulted in the Congress and the UDF’s victory in the elections.
Asked about the prospects in the Thiruvananthapuram Corporation, Joseph said the party was studying the matter and would comment later.
LDF convenor T P Ramakrishnan said the results would be closely examined.
According to him, the government had done everything possible for the people.
"Why such a verdict happened will be examined at the micro level. People’s opinion will be considered and further steps will be taken," he said.
He added that decisions would be taken after analysing the results. "If any corrective measures are required, we will initiate them and move forward," he said.
AICC leader K C Venugopal said the results showed that people had begun ousting those who, he alleged, were responsible for the loss of gold at Lord Ayyappa’s temple.
"This trend will continue in the Assembly elections as well. It is an indication that the people are ready to bring down the LDF government," he said.
Venugopal said the UDF had registered victories even in CPI(M) and LDF strongholds.
"I congratulate all UDF workers for their hard work. Congress workers and leaders worked unitedly," he said.
Referring to remarks made by Chief Minister Pinarayi Vijayan against the Congress on polling day, Venugopal said the voters had responded through the verdict.
"I do not know whether the chief minister understands that the people are against him. Otherwise, he does not know the sentiment of the people. The state government cannot move an inch further," he said.
He said the results indicated a strong comeback for the UDF in Kerala.
Asked whether the Sabarimala gold loss issue had affected the LDF in the local polls, Venugopal said the CM and the CPI(M) state secretary did not take the issue seriously.
"We took a strong stand on the matter. The BJP played a foul game in it," he alleged.
On the BJP's role in the local body elections, Venugopal alleged that the party operated with the CPI(M) 's tacit support.
"The CPI(M) supported the central government on issues such as PM-SHRI, labour codes and corruption in national highway construction. The CPI(M) is facing ideological decline, and the state government’s policies are against the party’s own decisions," he said.
Meanwhile, LDF ally Kerala Congress (M) leader Jose K Mani said the party could not win all the wards it had expected in the elections.
He congratulated winners from all parties and said the party would closely examine the losses and identify shortcomings. "Later, we will take corrective measures," he added.
Senior Congress leader and MP Rajmohan Unnithan said the trends in the local body elections indicated that the UDF would return to power in the 2026 Assembly elections.
"We will win 111 seats as in 1977 and return to power in 2026. The anti-government sentiment of the people is reflected in the elections," he said.
Unnithan said the people were disturbed and unhappy with the present government.
"The trend indicates the end of the LDF government," he added.
CPI(M) MLA M M Mani said the people had shown ingratitude towards the LDF despite benefiting from welfare schemes.
"After receiving all welfare schemes and living comfortably, people voted against us due to some temporary sentiments. Is that not ingratitude," he asked.
Mani said no such welfare initiatives had taken place in Kerala earlier.
"People are receiving pensions and have enough to eat. Even after getting all this, they voted against us. This is what can be called ingratitude," he said.
Muslim League state president Panakkad Sayyid Sadiq Ali Shihab Thangal said the results were beyond expectations.
"The outcome points towards the Secretariat in Thiruvananthapuram, indicating that a change of government is imminent. We are going to win the Assembly election," he said.
