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Moody's cuts India's growth forecast to 7% after monsoon concerns

business Updated: Aug 18, 2015 10:47 IST

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Rating agency Moody's Investors Services lowered India's growth forecast from 7.5% to 7% on Tuesday after citing monsoon concerns, and cautioned that the further risks to growth largely stem from the slow pace of reforms in the country.

"We have revised our GDP growth forecast down to around 7%, in light of a drier than average monsoon although rainfall was not as low as feared at the start of the season," Moody's Investors Service said in its 'Global Macro Outlook for 2015-16'.

Saying that India's growth outlook is resilient beyond short-term monsoon effects, Moody's has retained growth forecast for 2016 at 7.5%.

"One main risk to our forecast is that the pace of reforms slows significantly as consensus behind the need for reform weakens once the least controversial aspects of the government's plan have been implemented," Moody's said.

It said that, as a net importer of commodities, India's growth outlook benefits from the fall in commodity prices over the past year.

Also the country is "little affected" by demand from China and more generally slower global trade growth. Moody's said economic activity will continue to strengthen on the back of a gradual implementation of reforms that foster domestic and foreign investment.

Consumption growth will continue to be supported by large income gains as inflation has fallen to relatively low levels by the country's past standards and favourable demographics.

"Barring a large shock to commodity prices or food inflation, we think that the central bank's inflation targets are achievable," it added.

"Maintaining inflation at lower levels than in the past will support real incomes and spending. As long as the central bank's objective is credible, it will also foster investment by providing more visibility about future revenue growth and margins," Moody's said.

It added that growth in 2015-16 will also be supported by an accommodative fiscal policy stance and the budget focuses on sustained economic growth as a driver of narrower deficits.