Rural economy slowing down, warns Moody’s

New Delhi: The global rating giant Moody's said it expects India's weakened rural economy to remain subdued through the fiscal year ending March 2016, particularly if the risk of below-average monsoon rainfall materialises.

It further pointed out that, the rural income growth in India has been stuck in the mid-to-low single digits in so far this year, well off the more than 20 per cent rates clocked in 2011.

"A sustained soft patch for India's rural economy would weigh on private consumption and non-performing assets in the agricultural sector, (which is) a credit negative for the sovereign and banks," Moody's Vice President and Senior Research Analyst Rahul Ghosh said referring its latest 'Inside India' report.

The slower rural income growth is partly the result of increased fiscal restraint by the central government, however, Moody's believes is unlikely to change in the coming quarters. Elaborating further on policy reforms, Moody's said the plans to cut the country's corporate tax rate to 25 per cent from the existing 30 per cent over the next four years will be "credit positive" for all Indian corporates in so far as it will reduce their tax expenses and increase their competitiveness over the medium term.