Moody’s affirmed India’s sovereign rating at Baa3 with a stable outlook, saying higher growth will support a gradual rise in income levels that will contribute to economic strength.Baa3 is the lowest investment grade rating.All the three major global rating agencies – Fitch, S&P and Moody’s have assigned the lowest investment grade rating to India with a stable outlook.The rating is viewed by investors as a barometer of a country’s creditworthiness and affects the cost of borrowing.It said that although there has been a moderation in potential growth in the last 7-10 years, the Indian economy has the potential to grow rapidly by international standards.
According to Moody’s, it expects India’s economic growth to outpace all other G-20 economies for at least the next two years due to strong domestic demand.Higher GDP growth will contribute to a gradual raising of income levels and overall economic resilience.In turn, this would support orderly fiscal consolidation and government debt stabilisation, albeit at a higher level.Apart from this, the financial sector continues to strengthen, which will provide a lot of economic relief.
Reasons for rating downgrade
- Moody’s said the country’s financial sector continues to strengthen, which has reduced economic and contingent liability risks significantly. This is the reason why there was pressure to downgrade the rating earlier.
- According to the rating agency, the sustained rise in global and domestic interest rates highlights the risks posed by high debt burden and weak credit affordability, which are long-standing features of India’s sovereign ratings and Moody’s expects them to Will remain.
- Moody’s said, “Higher growth in GDP 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 a higher level.”
- The agency pointed out that India’s sovereign credit rating was decided by its dynamic, fast-growing economy, strong external balance sheet and democratic institutions that support policy forecasting and agreement.
- Earlier this year, S&P Global Ratings also affirmed India’s long-term BBB- and A-3 short-term sovereign ratings with a stable outlook, citing strong economic fundamentals that will underpin growth over the next 2-3 years.
Estimates of Indian institutions
- While announcing the monetary policy on August 10, 2023, Reserve Bank of India Governor Shaktikanta Das said that the Indian economy is likely to grow at 6.5 percent in the financial year 2023-24.
- According to the National Statistical Office, India’s GDP grew by 6.1 per cent in the fourth quarter of the financial year 2022-23, compared to a growth of 4.4 per cent in the previous October-December quarter.
- The economy is set to grow at 7.2 per cent for the full fiscal year 2022-23, which is higher than the central bank’s estimate of 7 per cent.