Explained: Why Moody’s lowered India’s outlook raking to ‘Negative’ from stable?

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Moody’s has cut India's credit ratings outlook from stable to negative stating that the government would not be able to help stunted economic growth

Moody’s lowered India’s outlook raking to ‘Negative’ from stable, government reacts strongly


Moody’s has cut India’s credit ratings outlook from stable to negative stating that the government would not be able to help stunted economic growth.  In the report, Moody’s cited a growing debt burden and the struggle of government to combat the budget deficit.  The rating company has rated India at Baa2. Notably, it is the lowest investment grade score.

William Foster, Vice President of Moody’s Sovereign Risk Group in a statement said, “Financial stress, especially in rural areas and low job creation calls into question how effective the nation’s government is in addressing its economy.”

He further added, “ A prolonged period of slow economic growth would decrease income growth and the pace of improvements in living standards.  It would potentially a constraint the policy options to drive sustained high investment growth from medium to longer period.”

The cut in the rating has put additional pressure on the Indian economy which tried to kickstart the economy in September with an unexpected cut in corporate taxes. Moody’s expects the government to struggle to narrow its budget deficit or contain a growing debt. As per Moody’s, the investor will keep a close check on the nation’s GDP for signs of further, long-lasting weakness could result in another negative shift.

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How the government has reacted over it?

Soon after Moody’s Investor Services cut India’s rating from stable to negative, the government has reacted to it strongly.  According to PTI, a statement was released by Finance Ministry stating, “India’s relative standing remains unaffected.”

The statement said that the fundamentals of the Indian economy remained quite robust. The recent reforms which are done will stimulate investments and strengthen the economy.

Despite the government’s strong statement, Moody’s forecast is a matter of concern as it expects India’s growth to remain lower due to mixed factors. Now, what will be the next step of the government?

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