Investors see greater external sector risks to India’s economy: Moody’s poll

The greatest threat to Indian economy is its over exposure to external shocks such as an interest rate hike in the US and slowdown in China, and such risks have risen since last year, a poll conducted by rating agency Moody's showed.

The external sector risks could limit India's economic growth to a 6.5-7.5 per cent range over the next 12-18 months, about 75 per cent of the market players and investors polled stated.

In the poll conducted by Moody's Investors Service earlier this month among 110 market participants, including some of India's largest investors, intermediaries and issuers, 35 per cent saw external shocks as the ''greatest challenge facing the economy'', up from just 10 per cent in the previous May 2015 poll.

In contrast, 32 per cent felt there is a sluggish reform momentum and 19 per cent saw infrastructure constraints, down from 47 per cent and 38 per cent, respectively, in May 2015.

''The consensus view on India's economic growth prospects appears reasonably upbeat. Over three quarters of the market participants we polled believe that headline GDP growth will remain in a range of 6.5-7.5 per cent over the next 12-18 months,'' Moody's said in its report titled 'Heard From the Market: India Not Immune to External Risks'.

Compared with the last poll in May 2015, only 14 per cent of participants now expect growth to accelerate to between 7.5-8.5 per cent, down from 36 per cent previously.
 
''Despite our audience's reasonably positive views on headline growth, we have seen a shift in the balance of risks to India's macroeconomic outlook,'' Moody's said.

''The market participants we surveyed are increasingly concerned about the potential spill-over of external risks such as US interest rate tightening and China's ongoing slowdown, on India's growth story.''

However, investors say India is much better placed than most of its similarly rated emerging market peers.

''Increased concerns about external shocks appear to reflect a more adverse global backdrop rather than India-specific external vulnerabilities having increased,'' it added.

To accelerate private sector investment, Moody's suggested that the government carry out key reform, including land acquisition, and pass legislation on goods and services tax.

''The successful passage and implementation of the government's reform agenda will be an important driver of the fortunes of both India's investment cycle and corporate credit quality. To date, the Modi administration's track record on reform has been mixed, with some signs of a loss of momentum in the latter stages of 2015,'' it said.