Moody's sees Indian economy flat at 6.5%

Moody's sees Indian economy flat at 6.5%

Associated Press, New Delhi

India's economy is likely to grow at 6.5 percent in the coming years, international credit rating agency Moody's Investors Service said on Tuesday, just three months after it gave India an investment-grade rating for the first time.

"While economic growth is not expected to continue at the pace that was achieved in 2003-04, we anticipate that annual growth will average a still respectable 6.5 percent in the years ahead," Moody's lead analyst for India, Kristin Lindow, said in a statement from Hong Kong.

The nation's economy is estimated to have expanded 8.1 percent in the fiscal year that ended March 31, largely due to a surge in farm output that contracted in the previous year because of drought.

"Even at 'just' 6.5 percent, India is likely to attract much more capital going forward than has been the case historically," Lindow said in the statement.

In January, Moody's rated the country Baa 3 - the first time India has received such a high investment grade from any agency. The Baa rating indicates a stable economic outlook for the country surveyed.

"The country's external financial position is consistent with or even stronger than its Baa peers," Lindow said.

India's foreign exchange reserves topped US$112 billion, nearly twice the amount the country spends on funding its annual imports, according to the latest estimates from the central bank.

Many analysts believe India, with one of the world's fastest- growing economies, will see annual growth accelerate as the nation becomes increasingly competitive.

The buoyancy in economic growth and India's surging foreign exchange reserves have prompted several international agencies to upgrade their rating of the country as an investment destination.

Lindow, however, cautioned that growth and its positive effects will be difficult to maintain in the absence of increased investment in human and physical infrastructure and a fiscal adjustment that would leave more room for private investment to expand.

"The willingness of politicians to correct the worsening fiscal situation has traditionally been lacking," she said, adding there is an opportunity for a fresh reform commitment after the national elections that will take place in the four weeks starting April 20.

"Moody's expects that the next administration will be favorably disposed to additional economic adjustments, to the extent that reforms are given credit for recent economic buoyancy. Hopefully, this will include more aggressive fiscal tightening," she said.

The consolidated gross debt of India's federal and state governments has increased to around 85 percent of the gross domestic product, Moody's said.