Mumbai: Moody’s Investors Service said the economic growth is expected to continue to pick up as liquidity conditions normalise, supporting expectations that the economic disruption caused by demonetisation will be short term in nature.
The agency continues to believe that in the medium term, demonetisation will strengthen India’s institutional framework by reducing tax avoidance and corruption, a credit positive for the sovereign.
Moody’s expects GDP growth to moderate to about 6.4 per cent in the January to March 2017 quarter from 7 per cent in the October to December 2016 quarter, before picking up above 7 per cent thereafter, as the temporary drag from demonetisation fades.
It noted that sales in real estate and auto sectors are gradually recovering after falling sharply in the immediate aftermath of note ban and expects the trend to continue over the second half of this year. Steel production also took a substantial hit following demonetisation, but has rebounded quickly and is currently performing better than anticipated.
Meanwhile, note ban has had little impact on India’s rated oil and gas refining and marketing companies, in line with Moody’s prior expectations.
On the other hand, the slowdown in economic activity has weighed on demand for credit among retail borrowers. “We expect this trend to continue over the next few months and for asset quality to deteriorate in the current quarter, although Indian banks have sufficient buffers to withstand the impact,” Moody’s added.
