Economic growth prospects could be affected by elections: Moody's

New Delhi: Global ratings agency Moody’s today said India’s economic recovery is likely to be slow in the second half of 2014, but the outcome of general elections could have an impact on the growth prospects.

Without specifically mentioning about India, Moody’s Investors Service also said that sovereign ratings in South and Southeast Asia will be largely stable in 2014.

This, the agency said, reflects its expectation that global growth prospects will improve while global risks will decline.

On India, it said: “We expect a slow economic recovery in the second half of this year, if global growth increases.”

Moody’s Sovereign Risk Group Senior VP and Manager Tom Byrne said however that “the outcome of national elections this year could also affect growth, depending on how it impacts sentiment and policies”.

General elections are scheduled to be completed by May-end.

The World Bank has projected that India’s economy will grow at over 6 percent in 2014-15 and 7.1 percent by 2016-17 as global demand recovers and domestic investment increases.

India’s economic growth slipped to a decade’s low of 5 percent in 2012-13.

Growth in the first half of 2013-14 is 4.6 percent, but the government expects the growth for the entire fiscal ending March 2014 to be at 5 percent. A further pick up is also expected in the coming months.

Moody’s further projected India’s inflation and interest rates to decline during the year.

The agency has assigned ‘Baa3’ rating on India with a stable outlook. ‘Baa3’ means medium grade with moderate credit risk.

The rating agency said the fiscal deficit would remain higher than those of similarly rated countries in 2014.

“Social welfare measures, for instance, such as the Food Security Act passed last year, will raise the government’s medium-term expenditure commitment,” Byrne added.

The Food Security Bill was passed by the Lok Sabha in August. The annual financial burden after its implementation is estimated to be about Rs 1.30 lakh crore at current cost.

The government hopes to contain fiscal deficit at 4.8 percent of GDP in the current fiscal and reduce it further to 3 percent by 2016-17.

Moody’s further said the structure of India’s government debt – which is owed mostly domestically, in domestic currency, at relatively low real rates, and at relatively long tenors – has mitigated stress on the government’s fiscal position.

PTI