Signs of growth recovery after GST, note ban impact: Moody’s

NEW DELHI: The Indian economy is starting to recover from the negative impact of demonetisation and disruption caused by the roll out of Goods & Services Tax (GST), Moody’s Investors Service has said in its global growth forecast for 2018 and 2019.

The international rating agency, however, kept the growth forecast for India in the calendar year 2018 unchanged at 7.6% and at 7.5% for 2019.

In its forecast, Moody’s noted that the Budget for fiscal year beginning April 1 (2018-19) includes some measures to stabilise the rural economy hit by the scrapping of high denomination Rs 500 and Rs 1,000 notes in 2016.

“There are some signs that the Indian economy is starting to recover from the soft growth patch attributed to the negative impact of the demonetisation undertaken in 2016 and disruption related to last year’s rollout of the Goods and Service Tax (GST),” Moody's said.

“Among the other major emerging market countries, we have left our growth expectations for India and Indonesia unchanged,” it said.

According to the Economic Survey, the economy is likely to grow at 7-7.5% in 2018-19.

“The 2018 budget includes some measures that could stabilise the rural economy that was disproportionately hit by the demonetisation policy and is yet to recover," Moody's said on Wednesday.

“As we have said before, the bank recapitalisation plan should also help credit growth over time, thereby supporting growth," the agency observed.

Last year, Moody’s Investors Service upgraded India’s sovereign bond rating for the first time in nearly 14 years, endorsing structural reforms undertaken by the Narendra Modi government that it said will boost growth and reduce the debt burden.

The agency lifted the country’s rating to Baa2 from Baa3, the latter being the lowest investment grade rating, and changed its rating outlook to stable from positive as “risks to its credit profile were broadly balanced”.

The rating agency had then noted that it expected India’s GDP growth to take a slip to 6.7% this year due to impact of GST and demonetisation, but saw it strengthening to 7.5% next year.

Moody's Investors Service revised its global growth forecasts for 2018 and 2019, incorporating stronger than expected economic data and reflecting the likely pick up tied to additional fiscal stimulus in the United States. Moody’s said stronger inflationary pressures would lead to a steady convergence of the monetary policy outlooks of global central banks over the next two to three years.