MUMBAI: Global rating agency Moody’s Investors Service on Tuesday said that that India’s economic growth over the next two years will be challenged by lackluster global demand and high leverage in some corporate sectors. “Growth will be adversely affected by high leverage of some large corporates, which will also weigh on credit demand, while impaired assets in the banking system would negatively affect credit supply,” said Marie Diron, Moody’s senior vice- president and manager.
According to Moody’s, the corporate de-leveraging is likely to take some more time as cash flows are getting impacted due to weak global demand. For the commodity producing and processing sectors, it noted that low prices are currently having an impact on revenues and profits. The rating agency pointed out that the government’s policy response would likely have mixed results. For instance, the imposition of minimum import prices for steel would be mildly positive for the sector.
On the other hand, expensive telecom auctions in 2016 will contribute to a further increase in leverage in the telecom sector, which is yet to digest last year’s auction outcome, it said. However, the rating agency added that India’s medium-term potential would be supported by the gradual implementation of further targeted policy reforms, thereby improving the business environment, state of infrastructure and productivity growth.
As for whether or not the United Kingdom’s majority vote to leave the European Union will affect India’s financial markets, Moody’s says that any effects will be limited because exports to the UK and the rest of the European Union account for 0.4 per cent and 1.7 per cent of India’s GDP respectively. In addition, India is not significantly exposed to a potential sharp fall in capital flows to emerging markets.
