Finance Ministry may seek rating upgrade from Moody’s during September 28 meeting

By: |
September 24, 2021 1:30 AM

Moody’s had in June 2020 trimmed India’s rating by a notch to the lowest investment grade of Baa-3 and retained the “negative” outlook, citing weakening fiscal metrics in the wake of the Covid-19 outbreak.

In its economic report for August, the finance ministry said agriculture continues to grow strong, while the sharp rebound in manufacturing and construction “places them firmly as growth drivers demonstrating the structural strengthening of the Indian economy”.In its economic report for August, the finance ministry said agriculture continues to grow strong, while the sharp rebound in manufacturing and construction “places them firmly as growth drivers demonstrating the structural strengthening of the Indian economy”.

The finance ministry will likely seek an upgrade to India’s sovereign rating from Moody’s Investors Service when its officials meet senior executives of the global rating agency on September 28, an official source said.

Moody’s had in June 2020 trimmed India’s rating by a notch to the lowest investment grade of Baa-3 and retained the “negative” outlook, citing weakening fiscal metrics in the wake of the Covid-19 outbreak. S&P, which has retained a similar rating for India for well over a decade now, said in May it saw no change in the country’s rating for the next two years.

Finance ministry officials said India more than deserves a rating upgrade as the economy has witnessed a “V-shaped recovery” since the second half of FY21, despite the onslaught of the second Covid-19 wave. The economy grew 20.1% in the first quarter of this fiscal, albeit driven by base effect, and the recovery will remain strong in the coming quarters as well, they said.

The officials will likely explain key budget numbers to the rating agency and assert that on various parameters, including tax collection, the Centre will exceed targets. They may assuage fears about India’s elevated debt level, said a source.

Moody’s has estimated that India’s general government debt may surge to about 90% of GDP in 2021 from 72% in 2019. The Centre’s fiscal deficit is set to remain within the budgeted target of 6.8% of GDP in FY22, against 9.3% last fiscal. Gross tax collections have increased 33% in the June quarter even from the pre-pandemic (same period in FY20) level. The Centre has reined in fiscal deficit at just 21.3% of the full-year target in the first four months of this fiscal, the lowest in about a decade.

As such, the sovereign rating assigned to India has been out of sync with its relative standing among major economies and its strong macro fundamentals, government officials have often argued, accusing rating agencies of bias against emerging-market economies.

In its economic report for August, the finance ministry said agriculture continues to grow strong, while the sharp rebound in manufacturing and construction “places them firmly as growth drivers demonstrating the structural strengthening of the Indian economy”.

Similarly, the government’s policy thrust on quickening the virtuous cycle of growth via capex and infrastructure spending has increased capital formation in the economy, lifting the investment-to-GDP ratio, which hit 31.6% in the June quarter from 24.4% a year earlier, according to the report.

In the wake of the second wave, Moody’s had in May slashed its India growth forecast to 9.6% for the calendar year 2021 from 13.9% announced earlier. It projected growth to slow down to 7% in 2022.

Moody’s was the only agency to revise up India’s sovereign rating for the first time in over a decade in November 2017, while its peers, S&P and Fitch, haven’t yet given the country an upgrade. In November 2019, it revised down its outlook for India to “negative” and it cut the rating to Baa3 last year.

Do you know What is India expected to grow 10 pc during current fiscal: NCAER Director General Poonam Gupt,FinMin releases Rs 9,871 cr grant to 17 state, Cash Reserve Ratio (CRR), Finance Bill, Fiscal Policy in India? FE Knowledge Desk explains each of these and more in detail at Financial Express Explained. Also get Live BSE/NSE Stock Prices, latest NAV of Mutual Funds, Best equity funds, Top Gainers, Top Losers on Financial Express. Don’t forget to try our free Income Tax Calculator tool.

Financial Express is now on Telegram. Click here to join our channel and stay updated with the latest Biz news and updates.

Next Stories
1Indian economy to see 10.5% or higher growth this fiscal: Niti Aayog Vice Chairman Rajiv Kumar
2With recovery widening, Icra sees Q2 GDP at 7.7 pc
3India poised to become USD 5-trillion economy by 2024-25: Union Minister Hardeep Singh Puri