Moody’s retains India rating, downplays global challenges

Significantly, the rating agency 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 its foreign-currency and local-currency long-term issuer ratings and the local-currency senior unsecured rating at Baa3.

In June, 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 the rating if India’s economic growth potential rose 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 may 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 per cent for the calendar year 2022 from its earlier projection of 8.8 per cent.

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

The June quarter growth of 13.5 per cent was near the lower band of the 12-17 per cent range forecast by analysts and below the Monetary Policy Committee’s predicted 16.2 per cent.