Ratings agency Moody’s has changed India’s sovereign rating outlook to “Stable” from “Negative” and affirmed the country’s rating at “Baa3″.
The ratings agency says India’s downside risks from negative feedback between real economy and financial system are receding, and hence an upgrade to “Stable” outlook. However, the risks stemming from a high debt burden and weak debt affordability remain.
S&P has a stable rating outlook on India, while Fitch has negative outlook.
Meanwhile, the affirmation of the Baa3 ratings, Moody’s said balances India’s key credit strengths, which include a large and diversified economy with high growth potential, and a relatively strong external position.
“Baa3″ rating is the lowest investment grade, just a notch above junk status.
Moody’s last year downgraded India’s sovereign rating to ‘Baa3’ from ‘Baa2’, saying there will be challenges in implementation of policies to mitigate risks of a sustained period of low growth and deteriorating fiscal position.
Earlier last month, India’s top officials have pitched for sovereign rating outlook upgrade from the current “negative” outlook. The officials, including the chief economic advisor K V Subramanian, have met representatives from Moody’s and discussed India’s economic growth prospects.
Moody’s has affirmed the country’s foreign currency and local currency long term issuer ratings, which are at the lowest investment grade. It has also affirmed India’s other short-term local currency rating at P-3.
The ratings agency sees India’s real gross domestic product (GDP) to surpass 2019 levels this fiscal year, rebounding to a growth rate of 9.3%. The growth is expected to average around 6% over the medium term.
The downside risks to growth are expected to be from subsequent coronavirus infection waves are mitigated by rising vaccination rates and more selective use of restrictions on economic activity, as seen during the second wave.
India’s GDP surged 20.1% in the April-June quarter of FY22, its best-ever quarterly figure, mainly on account of low base last year.
Moody’s expects the economic environment will allow for a gradual reduction of the general government fiscal deficit over the next few years, preventing further deterioration of the sovereign credit profile.
India’s fiscal deficit stood at from April-August period stood at ₹4.68 trillion August, touching 31.1% of the budgeted estimate.
In line with its Budget estimates, the Centre has announced it would borrow ₹5.03 lakh crore in the October-March period. The government had pegged its gross borrowing target for current fiscal at ₹12.5 lakh crore in the 2021-22 Budget.
Meanwhile, S&P Global Ratings in May said it sees no change in India’s sovereign rating for the next two years.
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