The firm, however, warned that the generally robust economic environment is constrained by 'banks' balance sheet repair and elevated corporate debt' and corporate pricing power being limited by the impact on food price inflation and households budgets of two consecutive droughts."

In its report 'Global Macro Outlook 2016-17 – Global growth faces rising risks at time of policy constraint', Moody's said growth will fail to pick up steam over the next two years as the slowdown in China, lower commodity prices and tighter financing in some countries weigh on the economy.

Amid low growth in global trade in goods, India's large services export sector (IT services account for around 18 percent of total exports) provides another source of resilience.

Moody's forecast "stable GDP growth at around 7.5 percent in 2016 and 2017." The growth rate gap with other G20 emerging markets will be unusually large.

"In the five years to the end of the decade, we expect GDP per capita (at market exchange rates) to increase by 34 percent in real terms in India, compared with only 3.6 percent in the G20 emerging markets excluding China and India," the report said.

Moody's said India's economy is powered by sustained growth in consumer spending, fostered by moderate inflation and still favourable demographics, and strengthening investment, in particular FDI.

The pay increase will also probably raise inflationary pressures. However, we assume the government will cut spending in other parts of the budget to maintain the deficit broadly in line with the 3.5 percent of GDP objective, thereby mitigating some of the inflationary effects," it said.

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