Global credit rating agency Moody’s and its India affiliate, ICRA, have said that the country’s sovereign rating (Baa3) carries a positive outlook for the year 2016 bucking the trend among similarly rated emerging market peers Brazil, Russia, South Africa, Indonesia, Turkey and the Philippines.

The agency observed that healthy domestic growth and accommodative monetary policies will benefit corporates.

The ‘Baa3’ rating incorporates credit strengths, such as India’s diversified economy, robust growth prospects, relatively high domestic savings rate and high international reserve buffers.

The positive outlook is an indication that there is an increasing probability that actions by policy-makers will enhance the country’s economic strength and, in turn, the financial strength over coming years.

“India enters 2016 on the cusp of a cyclical growth recovery, with inflation under control and the economy benefiting from lower commodity prices,” said Atsi Sheth, Associate Managing Director, Moody’s.

“However, these advantages will only yield sustainable growth acceleration once Indian corporate and bank balance sheets are repaired, and if the private sector remains internationally competitive,” she added.

According to Moody’s, low inflation indicated a greater balance between domestic demand and supply conditions, and would help India’s private sector remain internationally competitive. And, because corporate profit taxes are an important source of government revenues, stronger corporate profits will support the government’s fiscal consolidation efforts, it said.

Corporate taxes at 17 per cent contributed to a significant portion of the Centre’s revenues, Sheth said.

ICRA expects the growth of India’s gross value added at basic prices to rise to 7.7 per cent in FY17 from 7.2 per cent in FY16.

“We believe the lagged impact of reforms, the pay revision for government employees and pensioners, as well as the likely cyclical upturn in agriculture and rural demand will provide a modest boost to economic activity in 2016,”said Aditi Nayar, Senior Economist, ICRA.

However, Nayar added that while the pay revision for central government employees and pensioners was likely to boost consumer demand, it also posed a challenge to fiscal and inflation management.

According to ICRA, a normal monsoon in 2016 after two successive years of poor rainfall would boost agricultural output, restore the purchasing power of the farm sector, and boost rural demand.

Related Topics