Wednesday, September 21st, 2016

Indian economy: A day of conflicting assessments

MK Shukla | September 21, 2016 2:00 pm Print
While Credit Suisse said India is “on the cusp of a major growth phase”, Moody's referred to structural weaknesses in the economy

Analysts from the international investment bank Credit Suisse have said India is “on the cusp of a major growth phase”. A report, based on the findings of its analysts following their recent visit to India, said India “looks to be firing at last”. However, Moody’s does not share Credit Suisse’s optimism about the Indian economy.

The report said a large number of companies positively view government policies against corruption, creation of a level playing field “without favouritism”, “clear policies” and an earnestness among ministries and public sector companies to implement policies. These policies, the report added, “are not empty statements, they are being pursued vigorously.”

However, Moody’s does not share Credit Suisse’s optimism about the Indian economy. On Tuesday, the ratings agency referred to structural weaknesses in the economy and asserted that a review of the country’s sovereign ratings must await “more evidence” of healthy growth over the next year or two.

Addressing a joint press conference with ratings agency ICRA, Marie Diron, Moody’s senior vice-president, Sovereign Risk Group, said, “There has to be more evidence over time of faster fiscal consolidation, more tangible reforms and resolution of the asset quality of the banking sector.”

This assessment came a day ahead of her scheduled meetings with Economic Affairs Secretary Shaktikanta Das and senior Finance Ministry officials.

India currently has a Baa3 sovereign rating with a positive outlook from Moody’s, but it has been insisting on an upgrade.

Diron said that despite progress in carrying out a series of reforms, an upgrade might take longer owing to the continued weakness in private sector investments. Similarly, while the banks’ bad asset recognition was a first step, it would not strengthen banks’ resilience or reduce the contingent liability risks for the sovereign rating.

A Moody’s press release, though, noted that a “consumption catch-up would continue to support robust GDP growth in the medium term.”

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