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Election results could impact growth, says Moody's

January 16, 2014 15:53 IST

Election results could impact growth, says Moody's

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Global ratings agency Moody's on Thursday 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."

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Image: Supporters of Arvind Kejriwal, leader of the newly formed Aam Aadmi Party, wave India's national flag during the first party workers' meeting after their party won 28 constituencies in the state assembly elections, in New Delhi December 11, 2013.
Photographs: Adnan Abidi/Reuters

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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 per cent in 2014-15 and 7.1 per cent by 2016-17 as global demand recovers and domestic investment increases.

India's economic growth slipped to a decade's low of 5 per cent in 2012-13.

Growth in the first half of 2013-14 is 4.6 per cent, but the government expects the growth for the entire fiscal ending March 2014 to be at 5 per cent.

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Image: Dancers perform during celebrations outside the headquarters of Bharatiya Janata Party in New Delhi December 8, 2013.
Photographs: Ahmad Masood/Reuters

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Election results could impact growth, says Moody's

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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.

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Image: Women line up in a queue outside a polling booth to cast their vote during the state assembly election in Birchiwayas village in Ajmer district, Rajasthan, December 1, 2013.
Photographs: Reuters

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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 (Rs 1.30 trillion) at current cost.

The government hopes to contain fiscal deficit at 4.8 per cent of gross domestic product in the current fiscal and reduce it further to 3 per cent 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.


Image: Chief of Congress party Sonia Gandhi walks to greet her supporters after she addressed a rally.
Photographs: Amit Dave/Reuters

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