Rating Agency Moody's projected India's GDP Growth for the 2011-12 fiscal at 7.5-8%

Global rating agency Moody's projected India's GDP (gross domestic product) growth for the 2011-12 fiscal at 7.5-8 per cent on 5 September 2011. It also cited high domestic interest rates coupled with the current global uncertainties as the near-term factors that could affect its economic expansion. Moody's noted in its annual sovereign credit update on India that the cyclical slowdown was unlikely to alter its credit outlook.

The rating agency is of the opinion that rising domestic interest rates and an uncertain global economic environment would  possibly dampen India's near term GDP growth. However, the report mentioned that  a cyclical slowdown is unlikely to alter its credit outlook.

Moody's analysis was in sync with the view held by the RBI on inflation. Inflation was likely to moderate to around 7 per cent by the end of the fiscal in March 2012. The agency highlighted the concern over investment slowdown, a major issue that India Inc. cited for bringing about a pause in further rate hikes by the RBI.

Moody's report pointed to the limited room for further fiscal stimulus, given the fact that the government targeted to cap the fiscal deficit at 4.6 per cent of GDP in 2011-12, down from 4.7 per cent last fiscal. Moody's noted that its outlook on India's Baa3 foreign currency government bond rating remained stable with a Ba1 rating on the country's local currency debt. The gap between the Baa3 foreign currency debt and Ba1 local currency debt ratings reflects the potential likelihood that the government could prioritise its external obligations over its domestic obligations.

India is not immune to an international growth slowdown, the report however mentioned that the strength of domestic demand and the diversity of the economy provide a buffer against a deceleration in globally exposed sectors.

It can be expected that this ample stock of reserves will facilitate meeting foreign exchange obligations, should external shocks lead to a cessation of foreign exchange inflows for a significant period.