Muted global demand ‘to crimp India’s growth’

India’s gross domestic product (GDP) growth over the next two years will be challenged by lacklustre global demand and high leverage in some corporate sectors, according to Moody’s Investors Service.

“Growth will be adversely affected by high leverage of some large corporates also weighs on credit demand, while impaired assets in the banking system negatively affect credit supply,” says Marie Diron, a Moody’s senior vice president (SVP) and manager.

The credit ratings agency (CRA) predicts that by contrast, India’s medium-term potential will be supported by the gradual implementation of further targeted policy reforms, thereby improving the business environment, state of infrastructure and productivity growth.

On the issue of whether or not the UK’s majority vote to leave the European Union (EU) will affect India’s financial markets, Moody’s says that any effects will be limited because exports to the UK and the rest of the EU account for 0.4% and 1.7% of India’s GDP respectively. In addition, India is not significantly exposed to a potential sharp fall in capital flows to emerging markets.

Moody’s analysis is contained in its latest edition of Inside India, a quarterly publication that reviews major credit trends in India. The publication also notes that India has acquired energy assets in Russia to enhance the country’s energy security.

Specifically, India’s national oil companies (NOCs): Oil and Natural Gas Corporation (ONGC), Oil India Limited (OIL), Indian Oil Corporation (IOC), and Bharat Petroleum Corporation Limited (BPCL) – signed agreements with OJSC Oil Company Rosneft to acquire upstream oil and gas assets in Russia.

The Indian NOCs have announced four deals, which together will result in the NOCs owning a 49.9% stake in Rosneft’s Vankor field, and a 29.9% stake in Rosneft’s Tass-Yuryakh field. Moody’s estimates that the combined value of the deals will total about US$5.5bn, based on recently concluded transactions for the same fields.

The assets can potentially provide the NOCs with an additional crude oil production of 225,000 – 250,000 barrels per day (kbpd), which would be equivalent to about 34%-38% of India’s total domestic oil production of 664 kbpd for the fiscal year ended March 2016. The acquisitions will more than double India’s overseas oil and gas production of 194 kbpd reported in fiscal 2016.


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