Credit rating agency Moody's Investors Service (MIS said it expects India's rural economy to remain subdued through the fiscal year ending March 2016. It said that this forecast would materialise, particularly, if the risk of below-average monsoon rainfall takes shape.
"A sustained soft patch for India's rural economy would weigh on private consumption and non-performing assets in the agricultural sector, a credit negative for the sovereign and banks," said Rahul Ghosh, MIS vice-president and senior research analyst.
The analysis was published in the latest edition of Inside India, a quarterly publication of MIS.
According to the report, rural income growth in India has been stuck in the mid to low single digits in 2015 to date, well off the 20 per cent-plus rates clocked in 2011.
The slower rural income growth is partly the result of increased fiscal restraint by the central government, that MIS believes is unlikely to change in the coming quarters.
The publication also includes key takeaways from a number of audience polls carried out during the first annual Moody's and ICRA India Credit Conference in Mumbai, that took place in May.
According to the poll results, the consensus view on India's economic growth prospects is relatively optimistic, very much in keeping with Moody's baseline scenario of headline economic expansion of 7.5 per cent in FY2016.
This forecast represents the highest projection amongst G20 economies, and provides a key pillar of support for the Baa3 sovereign rating and positive outlook. "Notwithstanding these growth expectations, our polling results pointed to some disappointment amongst the audience with regard to the pace of reform under the administration of Prime Minister Narendra Modi, and increasing concerns about the risk of policy stagnation," MIS said.
Specifically, almost half of the poll respondents identified sluggish reform momentum as the greatest risk to India's macroeconomic story. According to MIS, the multi-party, federal democracy in India underpins a gradual pace of policy implementation.
