Moody's on why India's growth over 7.5% may not be sustainable

A growth rate of more than 7.5 per cent may not be ‘sustainable’ for India in the present scenario and the country needs to resolve tax issues that are impacting its investment climate, global rating agency Moody's said on Thursday.

It said, however, that the grow rate of 7.5 per cent projected for the current fiscal is ‘good’ and India's outlook is better than its peers.

"What is positive for India is political willingness to take a longer term reform measures. 7.5 per cent growth rate for current fiscal is a good growth and in present scenario higher than 7.5 per cent is not sustainable," Moody's vice president Atsi Seth told reporters.

She underlined the need for resolving the tax issues saying ‘uncertainty on tax issues is a deterrent to investment climate. Clarity on tax issue is important.

"We are looking at long term growth prospects for five year horizon.

“We are looking at sustainability of growth."

“The tax department has recently sent notices to foreign institutional investors demanding Rs 40,000 crore (Rs 400 as Minimum Alternate Tax on the capital gains made by them till March 31, 2015.

“Although the decision to slap tax notices follows a court ruling, it has generated lot of controversy.

As regards the growth outlook, Seth said India's prospects appear better than its peers but the policies are needed to incentivised to push private sector.

"India's outlook is relative better to other peers (and). . .constraints appear to be easing. India's inflation has been higher.

“Inflation could be a concern. Current account deficit has improved quite dramatically. Growth will be pushed by private sector and for that policies will have to incentivised."

Although the inflation has come down significantly in the past, the impact of unseasonal rains and hailstorm is likely to disrupt supplies and fuel food inflation in the coming months.