In a 'credit negative' for its sovereign and bank ratings, India's rural economy will remain subdued through this fiscal, while "some disappointment" has emerged about pace of reforms under the Modi government, global giant Moody's said today.
In its latest 'Inside India' report, Moody's Investors Service said the consensus view on India's economic growth prospects is relatively optimistic -- in line with Moody's baseline scenario of economic expansion of 7.5 per cent in the current fiscal.
"Forecast represents the highest projection amongst G20 economies, and provides a key pillar of support for the Baa3 sovereign rating and positive outlook," it said.
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This is the lowest investment grade rating, but a 'positive' outlook indicates room for further upgrade.
However, the results of polls conducted by it last month showed "some disappointment...With regard to the pace of reform under the administration of Prime Minister Narendra Modi, and increasing concerns about the risk of policy stagnation.
"Specifically, almost half of the poll respondents identified sluggish reform momentum as the greatest risk to India's macroeconomic story."
In the report, Moody's further said "the multi-party, federal democracy in India underpins a gradual pace of policy implementation.
"While many of the policies are positive for India's institutional strength, the direct impact of growth-enhancing reforms is only likely to take full effect over a multi-year horizon."
Moody's further said it expects India's weakened rural economy to remain subdued through the fiscal year ending March 2016, particularly if the risk of below-average monsoon rainfall materialises.
"A sustained soft patch for India's rural economy would weigh on private consumption and non-performing assets in the agricultural sector, (which is) a credit negative for the sovereign and banks," Moody's Vice President and Senior Research Analyst Rahul Ghosh said.
