Moody’s Investors Service today said the reforms undertaken by the government will help boost investor confidence and bolster growth potential, but cautioned muted private investment and banking sector risks will remain a constraint on India’s sovereign rating.
It also said in the near-term, challenging budget targets could lead to significant spending cuts late in the year, especially since fiscal deficit till July had touched 74 per cent of the whole year’s budget target.
“In Moody’s view, over time, the multi-pronged but step- wise approach to reform will foster a stable macroeconomic environment. In particular, the cementing of the monetary policy framework with the objective of maintaining inflation at moderate levels is credit positive. Moody’s expects continuity in monetary policy, which is a credit positive,” said Moody’s Sovereign Group Senior VP Marie Diron.
Moreover, structural hurdles will continue to constrain private sector investment and growth and banking sector will continue to pose contingent liability risks to the government over the near to medium term, Moody’s said.
