Moody's sees mfg & infra driving India growth; flags reforms, ET Infra

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MUMBAI: Burgeoning infrastructure and manufacturing sectors could push India to be the fastest growing economy over the next few years, said Moody’s Investor Service in its latest report. But the global credit rating agency also raised concerns that reform and policy barriers could hamper investment.

“Despite the positive backdrop, bureaucracy could slow approval processes in obtaining licenses and setting up businesses, prolonging project gestation,” Moody’s said, indicating a possibility of losing out to Indonesia and Vietnam.

“Ongoing efforts by India’s government to reduce corruption, formalize economic activity, and bolster tax collection and administration are encouraging, although there are increasing risks to the efficacy of these efforts,” it said.

Moody’s lauded the government’s efforts like the National Infrastructure Pipeline and Atmanirbhar Bharat.

While rising per capita incomes along with growing working age population is expected to push consumption, Moody’s said government spending is expected to drive infrastructure-related sectors like cement and steel. Moreover, net-zero commitments are expected to boost investment in the renewables industry.

“Larger production capacity will raise rated companies’ competitiveness in these sectors, a credit positive if they manage execution risks with financial discipline,” the ratings agency noted in its report.

Though Moody’s indicated that demand across manufacturing and infrastructure will grow 3-12% for the rest of the decade, it noted that India’s capacity will still rank behind China’s.

“Rated companies in manufacturing (steel, cement, oil and gas and automotive) and infrastructure (aviation and power) sectors will increase capacity and global competitiveness, bringing economies of scale, a credit positive,” it said.

The ratings agency also noted India’s comparative advantage in the growing services segment.

“The availability of cheap mobile data will further prompt global multinational corporations, banks and IT services companies to stay invested in India for outsourcing of their back-office, IT and knowledge process outsourcing-related services as they aim to lower costs,” it said.

Services export grew 42%, lowering India’s current account deficit in 2022-23.

On the manufacturing side, Moody’s noted that the steel sector will remain a bright spot, whereas growing disposable incomes and population will support the auto sector.

“While carbon intensive sectors such as cement, oil and gas, and steel may face decarbonisation challenges over a longer term, we still expect them to grow strongly until 2030,” it said.

The private sector’s key role in delivering new renewable and airport capacity in India underscores the role of low-cost funding, Moody’s said, underlining the need for continued and consistent support from the government.

On the credit side, Moody’s noted that as demand for capital expenditure grows, banks will diversify lending away from fast-growing retail to corporate lending.