Cautioning that slow reforms pace could dent growth, Moody's Investors Service today cut India's growth forecast for this fiscal to around 7 per cent from 7.5 per cent projected earlier, citing below-normal rainfall.
"We have revised our GDP growth forecast down to around 7 per cent in light of a drier-than-average monsoon although rainfall was not as low as feared at the start of the season," Moody's Investors Service said in its 'Global Macro Outlook for 2015-16'.
Saying India's growth outlook is resilient beyond short-term monsoon effects, Moody's has retained growth forecast for 2016-17 at 7.5 per cent.
"One main risk to our forecast is the pace of reforms slows significantly as consensus behind the need for reforms weakens once the least controversial aspects of the government's plan have been implemented," Moody's said.
The key reforms legislation with regard to GST and land acquisition could not be passed by Parliament in the monsoon session because of political logjam.
Moody's growth projection is lower than the estimates of International Monetary Fund (IMF), which projected India to grow at 7.5 per cent in 2015-16.
Both Moody's and IMF's growth projections, however, are lower than the estimates of the Finance Ministry and RBI. The Ministry expects GDP growth to be 8-8.5 per cent while the RBI has pegged it at 7.6 per cent for 2015-16.
Moody's Sovereign Rating Analyst Atsi Sheth said: "We reiterate that at 7 per cent, we are forecasting India to be among the fastest-growing large emerging markets this year. And we expect growth to accelerate by next year."
Sheth said the GDP forecast hinges on three parameters. First, the recent macro-economic and bank credit growth data, which shows economic indicators are moving in a positive direction, albeit slowly.
Second, although this year's monsoon is less weak than originally anticipated, its performance was such that a significant boost to rural incomes is unlikely in the near term, limiting an important driver of growth in India.
Last, given generally subdued global growth conditions and uncertain global financial environment, external markets have also not provided a growth boost, Sheth explained.
On inflation, Moody's said: "Barring a large shock to commodity prices or food inflation, we think that the central bank's inflation targets are achievable".
