In breather to the ongoing slowdown in Indian economy, Moody’s Investors Service in a new report has said that the Indian economy’s external fundamentals are strong enough to withstand a wide range of potential shocks.
The shocks include sudden reversals in short-term capital flows, a sharp slowdown in global growth, and weak government finances, or a slowing in structural reforms on account of a fractious political landscape.
The Moody’s report says that the strong fundamentals, combined with a private-sector induced upturn in savings and investment and a rising rate of potential growth, support the Indian government’s foreign currency sovereign bond rating of Baa3 and local currency bond rating of Ba2.
“The government’s local currency bond rating of Ba2 balances a high level of indebtedness with a favorable debt structure,” says Aninda Mitra, a Moody’s VP/senior analyst and author of the report, the rating agency’s latest annual update on India.
“At the same time, concerns about the size and servicing burden of the government debt is somewhat mitigated by the latter’s high local currency content, long tenor, growing domestic savings and a stable creditor base dominated by domestic institutions,” adds Mitra.
Meanwhile, the report notes that the Indian government’s Baa3 rating further reflects the country’s low external debt and strong external payments capacity — which compare favorably with most Baa-rated countries.
“However, weak government finances, though improving, are still a constraint on the country’s physical, financial and social infrastructure,” says Mitra.
The stable outlook on the foreign and local currency government ratings reflects Moody’s view that along with a large and well-diversified economy, reasonably adequate policy framework should help to contain several near-term macroeconomic challenges.