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Room for India's fiscal policy easing constrained by high debt burden: Moody's

Credit rating agency Moody's in its latest report Sovereigns - Brexit and Asia Pacific: Limited Direct Credit Impact; Some Sovereigns Exposed to Market Volatility', has said that in India the room for fiscal policy easing is constrained by high debt burden, but it also said that Britain's exit from the European Union will not have any significant credit impact on the Asia Pacific region and the sovereigns' exposure to external financing is limited for India.

Moody's in its report said that over the coming months, announcements related to Brexit could trigger financial market volatility in Asia Pacific sovereigns. It added that a shift in portfolio and/or banking flows that resulted in tighter financing conditions in some Asia Pacific markets would hurt growth, especially in countries where fiscal and monetary policy space is constrained.

Furthermore, Moody's said that where there is room for monetary and/or fiscal policy easing, the domestic authorities may take actions that would partially offset the negative shocks. It added that unless currencies depreciate significantly and stoke inflationary pressures, moderate inflation provides space to lower policy interest rates and ease domestic financing conditions.

The rating agency in its report cited that India's exports to UK were 0.4 per cent of the GDP in 2015 while shipments to European Union make up for 1.7 per cent. It said that India's GDP growth is likely to face challenge in next two years, due to sluggish global demand, high leverage in some corporate sectors and impaired credit supply.

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