In November, Moody’s downgraded India’s credit rating to negative and is now reevaluating its major oil and gas companies, such as Bharat Petroleum, as well as technology groups such as Tata Consultancy and Infosys, as the country enters its second year of a credit crisis.
With default rates at their highest in five years, businesses in India are struggling from a credit crunch, thanks, in part, to their shadow banking system (unregulated financial lenders), which we have been covering in the Trends Journal.
Companies are now having difficulty finding funding since IL&FS, a financial group with a previous triple-A rating, went into default in September 2018.
India’s shadow banking system competes with official banks and have been lending to all sectors of the economy. Analysts say that businesses with “high leverage have consistently shown deterioration.”
Loans in default, or close to default, fell last year from 12 percent of total bank assets to 9 percent this year. Although this drop is contributed to increased regulatory oversight, it remains the highest in the world.
TREND FORECAST: As noted in our Geopolitical Roundup, internal tensions between India’s Hindu-dominated government and its Muslim minority will continue to escalate.
Further, we forecast the Indian economy will continue to decline despite future monetary and fiscal stimulus measures its central bank and government may take. Among the internal reasons for the declining economy: too many people, not enough jobs, income inequality.
