Failure of reforms could hit investments, says Moody''s

Tribune News Service

New Delhi, November 25

Global ratings agency Moody’s Investors Service has cautioned that a loss of momentum on reforms in India may be an obstacle to investment and prove to be a ‘downside factor’ for Indian companies.

On a positive note, it said most corporates will benefit from strong economic fundamentals 

and accommodative monetary policy.

It further said weak global cues and an impending US rate hike may also have an impact on Indian businesses.

Moody's said a failure by the government in implementing key reforms such as Goods and Services Tax (GST) and land acquisition laws could hamper investment and signal a derailed reform prospect.

"A healthy 7.5% GDP growth for India for the fiscal year ending March 2017 and a pick-up in manufacturing activity will be broadly supportive of business growth," Moody's vice-president and senior credit officer Vikas Halan said.

The report said despite these overall supportive domestic conditions for the country's corporate sector, potential headwinds loom from a loss of reform momentum.

The Modi administration so far this year has been unable to enact legislation on key reforms, including a unified Goods and Services Tax and the Land Acquisition Bill.

"It seems highly unlikely that the major reforms will get enacted by the Upper House of Indian Parliament where the ruling coalition is in minority. A failure to implement these reforms could hamper investment amid weak global growth," Halan added. In its 2016 outlook for Indian non-financial corporates, Moody's said a 7.5% growth, easing inflation resulting in lower interest rate will lead 

to improving corporate cash flows and be broadly 

supportive of business growth.

The fall in commodity prices has benefitted many Indian corporates given the country's status as a net importer of raw materials and its recent history of high inflation. But low commodity prices will result in deterioration of credit metrics of 

metals and mining companies, it said.