Moody’s affirms India’s Baa3 rating, maintains ‘stable’ outlook on economy

  • India's long-term local and foreign-currency issuer ratings and the local-currency senior unsecured rating remains at Baa3, while the other short-term local-currency rating stands at P-3

Livemint
Updated18 Aug 2023
Moody's has maintained a stable outlook on India's economy. Photo: AFP
Moody’s has maintained a stable outlook on India’s economy. Photo: AFP

Ratings agency Moody's has affirmed BAA3 rating on India and maintained a 'stable' outlook on the Indian economy. The Baa3 rating and stable outlook also take into account a curtailment of civil society and political dissent, compounded by rising domestic political risk, according  the ratings agency.

India's long-term local and foreign-currency issuer ratings and the local-currency senior unsecured rating remains at Baa3, while the other short-term local-currency rating stands at P-3, said Moody's in a statement on August 18.

The affirmation and stable outlook are driven by Moody's view that India's economy is likely to continue to grow rapidly by international standards, although the potential growth has come down in the past 7-10 years.

The Indian economy is likely to grow at 6.5 per cent in the financial year 2023- 24, said Reserve Bank of India (RBI) Governor Shaktikanta Das while announcing the MPC's decision on August 10.

India's gross domestic product or GDP grew by 6.1 per cent in the fourth quarter of fiscal year 2022-23, compared to a growth of 4.4 per cent growth in the previous October-December quarter, as per the official data shared by the National Statistical Office. The Street had expected a growth of 5.5 per cent during the fourth quarter.

For the entire fiscal 2022-23, the economy's growth rate came in at 7.2 per cent, higher than the central bank's estimate of 7 per cent. However, the pace of growth was slower as compared to 9.1 per cent recorded in FY22.

Moody's said the country's financial sector continues to strengthen, alleviating much of the economic and contingent liability risks that had previously driven downward rating pressure.

A lasting upward shift in global and domestic interest rates highlights the risks stemming from a high debt burden and weak debt affordability, which have been long-standing features of India's sovereign rating and Moody's expects them to remain, according to the ratings agency.

"High GDP growth will contribute to gradually rising income levels and overall economic resilience. In turn, this will support gradual fiscal consolidation and government debt stabilisation, albeit at high levels,'' said Moody's.

Earlier this year, S&P Global Ratings had also affirmed India's long-term 'BBB-' and A-3 short-term sovereign rating with a stable outlook, citing sound economic fundamentals that will underpin growth over the next 2-3 years.

The agency explained that India's sovereign credit ratings were anchored by its dynamic, fast-growing economy, strong external balance sheet, and democratic institutions supporting policy predictability and compromise.

 

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