Recent policy measures by Indian government to generate growth over 3-5 years: Moody's India

NEW DELHI: At a time when the Parliament is paralysed over opposition of the Union Cabinet's approval on 51 per cent in multi-brand retail, Moody's India has said that the recent steps taken by the government show that policy lapses are being addressed.

Moody's India is of the opinion that the recent policy initiatives would generate growth in the country over the next three-five years. However, Moody's also clarified that it saw certain political risks to policy decisions in India.

In a dampening outlook, the rating agency sees the industrial productivity slowdown spilling into the current quarter as well. India's industrial output grew at its slowest pace in two years in September, providing further evidence of deceleration in the economy and raising the odds of a pause in the central bank's 20-month-old policy tightening cycle.

Production at factories, mines and utilities grew 1.9 per cent from a year earlier in September, lower than an ownwardly revised 3.6 per cent growth a month ago.

Planning Commission Chairman, Montek Singh Ahluwalia said that the IIP numbers were disappointing and the pace of growth in the economy has slowed down. "We have to ensure that the economic recovery takes place soon," added Ahluwalia.

Moody's has also said that tough times are ahead for the Indian economy and it may revise downwards the country's growth forecast for 2011-12 to 6.5 per cent.

"We may need to revise our 2012 growth outlook from the current rate of 7 per cent and towards something like 6.5 per cent... It looks like tough times are ahead," Moody's Analytics said in a report.

The country's Gross Domestic Product (GDP) growth slipped to 6.9 per cent in the second quarter, the lowest in over two years. For the first half (April-September) of the fiscal, the average growth rate stood at 7.3 per cent.

The economic growth in 2010-11 stood at 8.5 per cent. Growth in eight core infrastructure industries dipped to 0.1 per cent in October, the lowest in five years.

Moody's said that the economy is struggling under the weight of higher interest rates but this had failed to achieve the objective of cooling inflation, which have been above the 9 per cent mark since December last year.

RBI has already hiked its key-policy rates 13 times, totalling 350 basis points, since March 2010 to tame demand and curb inflation.

While Moody's has hinted as revising India's growth forecast downwards, even its existing 7 per cent economic growth projection for the current fiscal is less than that of many other global institutions and ratings agencies.

It is also less than the projections made by the Organisation for Economic Cooperation and Development (OECD), Centre for Monitoring of India Economy (CMIE), Crisil and ICRA, who have all put growth to be between 7.3 per cent and 7.6 per cent.