The worries over India's economic growth outlook will be over if fiscal consolidation takes place by prudent spending and higher revenues through privatisation receipts, along with a wider tax base, Singapore's DBS Bank said on Friday. Encouragingly, cyclical growth momentum is getting a hand from reduction in rates and surplus liquidity conditions, wrote Radhika Rao, Vice Senior President and Economist at DBS in Singapore.
Looking past the transient spike in inflation, there is room for monetary authorities to provide more support this year, added Rao in comments on Moody’s Investors Service downgrade of India’s economic outlook to negative from stable. Better growth is necessary to lower overall public debt levels, which are currently above medium-term targets, Rao said, noting that Moody's outlook change reflects concerns over growth outlook and anticipated fiscal slippage.
"External vulnerability indicators are, meanwhile, buffeted by record high foreign reserves and comfortable import coverage," Rao pointed out.
Moody’s decision to change the outlook to negative reflects increasing risks that economic growth will remain lower. But the Indian government on Friday reacted strongly to Moody's ratings, saying the fundamentals of the economy remain quite robust and series of reforms undertaken recently would stimulate investments.