Moody's Investors Service cut its forecast for India's economic growth to around 7 percent this year from 7.5 percent because of lower-than-expected rainfalls in the ongoing monsoon season, the ratings agency said on Tuesday.
Moody's maintained its forecast of around 7.5 percent increase in gross domestic product (GDP) for 2016, but pointed to risks ahead that include delays to the government's reform plans.
Moody's rates India at its lowest investment grade rating of "Baa3" with a "positive" outlook.
"Maintaining inflation at lower levels than in the past will support real incomes and spending. As long as the central bank's objective is credible, it will also foster investment by providing more visibility about future revenue growth and margins," it said.
Inflation, both wholesale and retail, has hit record lows. While retail inflation was at 3.78 per cent, WPI stood at (-)4.05 per cent in July.
Moody's said growth in 2015-16 will also be supported by an accommodative fiscal policy stance and a Budget that focuses on sustained economic growth as a driver of narrower deficits.
It said as a net importer of commodities, India's growth outlook benefits from the fall in commodity prices over the past year. Also, the country is "little affected" by demand from China and more generally, slower global trade growth.
Moody's maintained its baseline GDP growth forecast for China at 6.8 per cent for 2015 and 6.5 per cent in 2016, before falling towards 6 per cent by the end of the decade.
"The recent stock market correction is unlikely to have a significant impact on China's GDP growth. The depreciation of the renminbi so far will also not have any marked economic impact," it said.