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Economy of energy-hungry India may face headwinds

International Monetary Fund said the rate of decline for India's inflation rate has been dramatic.

By Daniel J. Graeber
Economy of energy-hungry India may face headwinds
Energy-hungry economy of India may be facing headwinds in part from the steady recovery in crude oil prices. Photo by nito/Shutterstock

SINGAPORE, Aug. 22 (UPI) -- The economy of energy-hungry India is on pace for steady growth that outpaces the global economy, though gains are moderating, Moody's Investors Service said.

"Moody's Investors Service says that India's credit profile is supported by the strong growth potential of its large economy and the high private savings rate which underpins the government's access to domestic financing at relatively favorable terms," the ratings agency said in a report published Monday.

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Lower crude oil prices, relative to 2014 levels, are dampening the fiscal strains on an economy growing at a rate of around 7 percent. Moody's said tighter monetary policies and favorable developments like lower oil prices translated to stable macroeconomic development for India.

The August economic forecast from the Organization of Petroleum Exporting Countries said the global economy should grow at around 3.1 percent next year, a rate unchanged from OPEC's prior monthly market report. India was among the countries singled out by OPEC, however, that may show signs of decline moving through this year.

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A recent profile from the International Monetary Fund, meanwhile, said deflation in India has been "dramatic," though its growth rate of 7.5 percent remains higher than that of even China's. Still, OPEC said investment in India has so far been disappointing and uncertainty about national economic policy "does not bode well for growth in the near term."

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OPEC estimates India's demand for oil grew by almost 7 percent over last year, but said the recent recovery in crude oil prices could expose the Indian economy to external risks.

Urjit Patel was appointed during the weekend as the next head of the Reserve Bank of India, tasked with steering the economy through what may be emerging headwinds.

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From the perspective of Moody's, inflation remains steady enough and efforts aimed at improving the business climate are supportive of growth.

"In turn, persistent income and profit growth would raise government revenues and contribute to improved fiscal metrics," the ratings agency said. "However, we expect the benefits to be very gradual."

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