India has emerged as one of the most resilient large emerging markets in weathering multiple global shocks over the past five years, Moody’s Ratings said on Tuesday. The rating agency also noted that India is well-placed to manage future shocks because monetary policy frameworks are clear and predictable, inflation expectations are well anchored, and exchange rates can adjust when needed.
In its Sector In-Depth report titled “Sovereigns – Emerging Markets: Early policy reform and strong buffers support resilience to global shocks”, Moody’s underlined India’s (Baa3 stable) durable resilience, driven by early structural policy reforms and solid external and domestic buffers. The report assessed how large emerging market sovereigns handled volatile financial conditions across four major stress episodes since 2020.
“Relatively accommodative external market conditions in the wake of recent shocks helped emerging markets absorb successive external shocks since 2020. Market pressures over this period have been transmitted primarily through yield adjustment rather than through rising sovereign risk premia,” Moody’s said.
India demonstrated the strongest and most consistent market resilience among peers, alongside Malaysia and Thailand. According to the report, it showed limited widening in hard-currency credit spreads, moderate moves in yield differentials, contained exchange rate depreciation, and orderly local currency yield volatility. This contrasts sharply with higher volatility seen in countries like Türkiye and Argentina.
Moody’s particularly highlighted India’s structural policy improvements made well before the recent stress period as a key driver. The adoption of inflation targeting by the Reserve Bank of India in 2016 strengthened monetary policy credibility, helping anchor expectations and stabilise foreign-exchange flows even amid global volatility. Sizeable foreign-exchange reserves played a crucial role in smoothing foreign-exchange volatility and reinforcing confidence in India during global shocks. India’s low reliance on external issuance reduced its sensitivity to global risk sentiment.
The report placed India and Thailand in the structural resilience category, the strongest assessed. Both countries benefit from clear and predictable monetary frameworks, well-anchored inflation expectations, and exchange rates that can adjust when needed. India’s reliance on domestic funding is balanced by deep local markets and sizeable reserves.
While acknowledging India’s strong external buffers, the report noted that the country’s relatively high debt burden and weak fiscal balance limit the space available to respond to successive shocks. It suggested continued focus on fiscal consolidation and improving the composition of government spending to further strengthen resilience.