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Global Credit Research - 23 Apr 2013
New York, April 23, 2013 -- Moody's Investors Service says India's recent reforms do not
address all the regulatory, financial and pricing constraints on
infrastructure investment, but they could still attract private
investment because the policy changes coincide with a conducive financing
environment characterized by low global interest rates and falling domestic
interest rates.
Moody's detailed its conclusions in a newly released report titled,
"Indian Infrastructure: Increased Private Investment Would
Benefit Sovereign Credit Profile".
The report says that given the Indian government's weak fiscal position,
the country's vast infrastructure needs cannot be bridged without
private investment.
Infrastructure shortages are a constraint on India's Baa3 sovereign
rating because the country's infrastructure is weaker than in comparable
emerging markets. This has hurt potential growth, as well
as the competitiveness of its export and import-competing sectors,
thus contributing to its trade and current account deficits. Moreover,
poor infrastructure discourages foreign direct investment inflows,
which could finance these deficits and stimulate growth. Infrastructure
deficiencies also heighten the supply bottlenecks that fuel inflation.
Nonetheless, Moody's stable outlook on the sovereign rating
assumes that infrastructure investments will increase over the next 12--18
months, as the country's medium term demand for infrastructure
remains robust despite the recent slowdown in GDP growth. Domestic
demand for infrastructure is fueled by a critical mass of Indian consumers
with growing disposable incomes as well as corporations willing to pay
for improved infrastructure in order to remain internationally competitive.
Consequently, the private sector may be more interested in investing
in Indian infrastructure, as demand for infrastructure and the lowering
of regulatory and pricing barriers revives the prospects for profits.
Moreover, financing for infrastructure investment may now be easier
to obtain, as investors seek real investment assets, against
the backdrop of lower interest rates and slower global growth.
However, since policies will only selectively and slowly address
current supply constraints, Moody's believes any investment
will likely commence as a trickle rather than a surge. Nevertheless,
according to the report, even incremental infrastructure improvements
will alleviate pressures on the balance of payments and inflation,
while enhancing growth and living standards.
The report further notes that while pre-election politics pose
risks, these risks are not exclusively negative. India's
fragmented politics have often hindered the economic policy process,
regardless of the electoral cycle. Now, as incumbent governments
seek to revive sluggish growth ahead of state and national elections in
2013 and 2014, they may accelerate policy implementation in order
to attract investment.
Moody's report is an update to the markets and does not constitute
a rating action. Subscribers can access the report at http://www.moodys.com/research/Indian-Infrastructure-Increased-Private-Investment-Would-Benefit-Sovereign-Credit-Profile--PBC_152123.
* * * *
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You can also email us at mediarelations@moodys.com or visit our
web site at www.moodys.com.
Atsi Sheth
Vice President - Senior Analyst
Sovereign Risk Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Bart Jan Sebastian Oosterveld
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653
Moody's: India's infrastructure may be boosted by twin factors
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