Widening trade gap credit negative for India: Moody's
At present, Moody's has a 'Baa3' (lowest investment grade) rating for India with a stable outlook and any downward revision from here could pull the country's credit rating into junk grade.
Commenting on the latest government data showing an increase in India's trade deficit to USD 20 billion as on January 31, Moody's said: "India's widening trade deficit is credit negative...
These rising deficits are being financed by increased foreign-currency borrowing, raising India's vulnerability to international financial volatility."
The country's trade deficit in January stood at its second highest level, while the biggest ever gap of USD 21 billion was recorded in October, 2012.
"Wider trade deficits can also weaken the currency, raising domestic prices of imported commodities, further fuelling India's already high inflation rate," Atsi Sheth, Vice President - Senior Analyst, Sovereign Risk Group, Moody's Investors Service said.
India's trade deficits averaged about USD 13.5 billion a month in 2011 and USD 16 billion a month in 2012, up from an average of USD 9.5 billion a month between 2008 and 2010.
Moody's said the three main factors responsible for widening trade deficit over the past two years include slowing global growth that has lowered demand for Indian exports, rising prices of oil and gold that account for a bulk of the country's merchandise imports, and a loose fiscal policy which stimulates domestic demand,
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