Moody’s retains India’s rating, stable outlook | The Financial Express

Moody’s retains India’s rating, stable outlook

The agency said it could upgrade India rating if the country’s economic growth potential increased materially beyond its expectations, supported by effective implementation of economic and financial sector reforms that led to a significant and sustained pickup in private sector investment.

Moody’s retains India’s rating, stable outlook
According to Moody's, principal credit challenges for India include low per capita income, high general government debt, low debt affordability and limited government effectiveness. (IE)

Moody’s Investors Service on Tuesday announced its decision to retain India’s sovereign credit rating at ‘Baa3’, the lowest investment grade, and persist with its “stable” outlook on the country.

The agency cited the country’s large and diversified economy with high growth potential, a relatively strong external position, and a stable domestic financing base for government debt for the decision to affirm the rating.

It said the stable outlook has been retained because “risks from negative feedback between the economy and financial system are receding.”

Significantly, Moody’s doesn’t expect rising challenges to the global economy, including the impact of the Russia-Ukraine military conflict, higher inflation, and the tightening financial conditions on the back of policy tightening, to derail India’s ongoing recovery from the pandemic.

Moody’s had in October 2021 changed the outlook on the Government of India’s ratings to stable from negative and affirmed the country’s foreign-currency and local-currency long-term issuer ratings and the local-currency senior unsecured rating at Baa3.

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In June 2022, Fitch Ratings revised up its outlook for India’s long-term foreign currency Issuer Default Rating (IDR) to ‘stable’ from ‘negative’ after a gap of two years, even as it retained its sovereign rating for the country at the lowest investment grade of ‘BBB-‘ continuously for 16 years.

In fact, all the three top rating agencies — S&P, Moody’s and Fitch — assign similar ratings and outlook for India now.

According to Moody’s, principal credit challenges for India include low per capita income, high general government debt, low debt affordability and limited government effectiveness.

The agency said it could upgrade India rating if the country’s economic growth potential increased materially beyond its expectations, supported by effective implementation of economic and financial sector reforms that led to a significant and sustained pickup in private sector investment.

Effective implementation of fiscal policy measures that resulted in a sustained decline in the government’s debt burden and improvements in debt affordability would also support the credit profile, it added.

Among factors that could lead to a downgrade of India, it listed “weaker economic conditions than we currently expect that pointed to lower growth over the medium term and/or a resurgence of financial sector risks.”

Last Wednesday, a day after official data estimated a lower-than-expected rate of expansion for the Indian economy in the June quarter, Moody’s sharply trimmed its real growth forecast for the country to 7.7% for the calendar year 2022 from its earlier projection of 8.8%.

Lowering its projections, Moody’s stated that rising interest rates, uneven distribution of monsoons, and slowing global growth are expected to dampen India’s economic momentum on a sequential basis. India’s growth is projected to drop further to 5.2% in 2023, it said, partly as the base normalises.

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Goldman Sachs, too, cut its 2022 growth forecast for India to 7% from 7.6%; for the fiscal year (FY23) as well, the projection is now pegged at 7%, against 7.2% earlier. Similarly, Morgan Stanley said there is a downside risk of 40 basis points to its growth estimate of 7.2% for FY23, thanks to weaker-than-expected growth in investments and higher drag from net exports.

The June quarter growth of 13.5% was closer to the lower band of the 12-17% range forecast by analysts and below the 16.2% predicted by the Monetary Policy Committee.

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