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Business News/ Economy / Moody’s retains India’s Baa3 rating with stable outlook

Moody’s retains India’s Baa3 rating with stable outlook

The report follows a sharp revision of India’s growth forecast last week to 7.7% from 8.8% estimated earlier

The agency said India’s credit profile reflects its strengths. afpPremium
The agency said India’s credit profile reflects its strengths. afp

BENGALURU : Global headwinds, including the Russia-Ukraine conflict, higher inflation, and tightening financial conditions, are unlikely to derail India’s ongoing recovery from the pandemic in 2022 and 2023, ratings company Moody’s Investors Service said on Tuesday.

Moody’s retained India’s sovereign credit rating of Baa3 with a stable outlook. The agency said that India’s credit profile reflects strengths, including its large and diversified economy, a relatively strong external position, and a stable domestic financing base for government debt. However, it noted that principal credit challenges include low per capita income, high general government debt, low debt affordability and limited government effectiveness.

The report follows a sharp revision of India’s growth forecast last week to 7.7% from 8.8% estimated earlier. It attributed monetary policy tightening, uneven distribution of monsoon, and slowing global growth to the downward revision.

Moody’s had also cut the growth estimate for 2023 to 5.2% from the 5.4% estimated earlier. It has estimated India’s gross domestic product growth for FY23 at 7.6%.

“The stable outlook reflects our view that the risks from negative feedback between the economy and financial system are receding. With higher capital buffers and greater liquidity, banks and non-bank financial institutions (NBFIs) pose much less risk to the sovereign than we previously anticipated, facilitating the ongoing recovery from the pandemic," Moody’s said in the report. While risks stemming from a high debt burden and weak debt affordability remain, we expect that the economic environment will allow for a gradual narrowing in the general government fiscal deficit over the next few years, avoiding further deterioration in the sovereign credit profile, it added.

The report comes days after the official data showed that India’s economy expanded well below expectations at 13.5% during the fiscal first quarter, with the manufacturing sector performing dismally.

The ratings agency had in October last year revised India’s outlook on its credit ratings to stable from negative earlier on the back of receding downside risks.

Moody’s highlighted that India could see an upgrade in the rating if the economic growth potential would increase materially “beyond our expectations", supported by effective implementation of economic and financial sector reforms that led to a significant and sustained pickup in private sector investment.

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Dilasha Seth
" Dilasha Seth is a journalist reporting on macroeconomic policy for the last 11 years. She writes extensively on issues including international trade, macroeconomic data, fiscal policy, and taxation. At Mint, she reports on trade deals that India is signing besides key policy decisions of the Ministry of Finance. She closely tracked and covered the transition to the goods and services tax (GST) regime in 2017 and also writes on direct tax-related issues. In the past, she has worked with Business Standard and The Economic Times. She is based in Bangalore."
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Published: 07 Sep 2022, 01:01 AM IST
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