A report that has come a day before parliament begins its session speaks of loss of momentum due to failure to carry out reforms
GN Bureau | November 25, 2015
On the eve of parliament session there is warning again for the political class to act on economic reforms, forgetting party divide. Legislative business has come to halt due to tug of war between the government and the opposition. And it cannot be allowed to continue if India has to progress and Indians to prosper.
The alarm bells are in the form of a report released today. Moody's Investor Services has again warned the government on sluggish economic reforms. The rating company sees the government's inability to get reforms approved as a major hurdle.
It cautioned that a loss of momentum on reforms may hamper investment and prove to be a ‘downside factor’ for Indian companies. The report said most corporates will benefit from strong economic fundamentals and accommodative monetary policy.
It further said that weak global cues and an impending US rate hike may also have an impact on Indian businesses.
The report particularly touched upon the political stalemate. "The Modi administration so far this year has been unable to enact legislation on key reforms, including a unified goods and services tax (GST) and the Land Acquisition Bill," Moody's said in the research report.
The ruling NDA government has said it is willing to discuss with the Congress to get the GST bill passed in the winter session of Parliament beginning tomorrow. The passage of the bill in the forthcoming session is essential to ensure rollout of GST from April 1, 2016.
“A healthy 7.5 per cent 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 VP and Senior Credit Officer Vikas Halan said.
“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,” Halan said.
By sector, Moody's expects upstream oil and gas companies to benefit from lower fuel subsidy burdens, although low crude and domestic natural gas prices will continue to hurt profitability.
In the real estate sector Moody's expects demand to improve in 2016 on the back of lower interests rates, although approval delays could push back project launches for property developers.
The fall in commodity prices has benefited 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.
The other ‘downside factors’ listed by Moody’s in its report are loss of reform momentum leading to annual GDP growth falling below 6 per cent, resulting in a deterioration of credit metrics. Also higher interest rates brought on by rising inflation and/or exchange rate volatility, resulting in a tight funding environment is a factor.