Moody's downgraded its outlook on India to negative from stable amid claims by the government that its economic fundamentals remain "quite robust".
In a statement late Thursday, the credit rating agency said the Indian economy was facing increasing risks "leading to a gradual rise in the debt burden”.
The downgraded rating came as India’s gross domestic product (GDP) growth has gone down from a peak of 8.2% in 2016-17 to 6.8% in 2018-19, with the fourth quarter of 2018-19 dipping to 5.8%.
It further dropped to 5% in the first quarter of 2019-20. Besides, the country is recording a 45-year high unemployment rate.
In an earlier interview, Indian journalist MK Venu with expertise in political economy told Anadolu Agency that he had never seen such a steep decline of Indian economy in the past three decades.
Moody’s said that the prospects of further reforms that would support business investment and growth at high levels and significantly broaden the narrow tax base “have diminished”.
Author and journalist Kallol Bhattacharjee told Anadolu Agency in an email interview from New Delhi that the effects of demonetization of a major portion of Indian currency in circulation can no longer be hidden.
“The fact, however, is that credit rating bodies and digi-cash groups like BTCA [Better Than Cash Alliance] had cheered India's draconian turns for digital economy in 2016-17 and they should be held accountable too for the causes that they espouse,” he said.
In a controversial move in 2016, Indian President Narendra Modi banned all 500- and 1,000-rupee notes ($7 and $14) saying it will flush out untaxed wealth. In the weeks that followed, long queues were seen outside banks as people rushed to change their old banknotes for new ones.
India's Finance Minister Nirmala Sitharaman responded to Moody's outlook in a statement to local broadcaster NDTV.
"As India's potential growth rate remains unchanged, assessment by IMF [International Monetary Fund] and other multilateral organizations continues to underline a positive outlook on India," she said.
“Fundamentals of the economy remain quite robust with inflation under check and bond yields low. India continues to offer strong prospects of growth in near and medium term," she added.
Bhattacharjee, however, said that the current government in India needs to raise consumer confidence in a banking system that is "yet to recover from the digital economy measures like demonetization of 2016”.
“For that [recovery of economy], the country requires less economic adventurism and more political harmony. A deficiency of either or both will hurt Indian economy further,” Bhattacharjee said.
The Moody’s statement came a few days after India decided to opt out of “largest” regional trading agreement -- Regional Comprehensive Economic Partnership (RCEP) -- that includes ASEAN members besides Australia, China, Korea, Japan and New Zealand.
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