Inflation, corporate profit trends key to economic growth: Moody’s

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Mumbai | Published: January 13, 2016 9:28:09 PM

Global rating agency Moody's today reiterated its view that the country will remain one of the fastest growing large economies in 2016, but inflation and corporate profit...

The rating agency said low inflation would indicate a greater balance between domestic demand and supply conditions and help the private sector remain internationally competitive. (Reuters)The rating agency said low inflation would indicate a greater balance between domestic demand and supply conditions and help the private sector remain internationally competitive. (Reuters)

Global rating agency Moody’s today reiterated its view that the country will remain one of the fastest growing large economies in 2016, but inflation and corporate profit trends are likely to determine the growth trend.

Moody’s domestic affiliate ICRA Ratings too expects growth in gross value added at basic prices to be at 7.7 per cent in 2016-17, from 7.2 per cent in 2015-16.

Moody’s has a rating of Baa3 with a positive outlook on the country.

“India enters 2016 on the cusp of a cyclical growth recovery, with inflation under control and the economy benefiting from lower commodity prices,” Atsi Sheth, Associate MD for sovereign ratings at Moody’s Investor Service, told reporters at the Moody’s-ICRA seminar on ‘Financing India’s Growth’ here today.

“Though India’s growth is outperforming, it is perhaps not what people had anticipated at around 7.5-8 per cent. But 7 per cent growth is very good indeed,” she said.

However, the trends like lower inflation and a steep fall in commodity prices led by steel and crude oil would only yield sustainable growth acceleration once corporate and bank balance sheets are repaired and the private sector remains internationally competitive, she added.

The rating agency said low inflation would indicate a greater balance between domestic demand and supply conditions and help the private sector remain internationally competitive.

“Because corporate profit taxes are an important source of government revenues, we believe that stronger corporate profits will support the government’s fiscal consolidation efforts,” she said.

Even though the country’s growth is driven domestically, the external environment makes a lot of difference, she said.

According to Sheth, going ahead, the country is likely to face risk from the weak global growth and availability of easy and cheap capital.

“We are going into an environment where the Fed is raising rate and investors are risk averse. So, India is unlikely to have access to easy, cheap capital what it did 10 years ago,” she added.

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