NEW DELHI: Global rating agency Moody’s Investors Service on Tuesday changed the rating outlook of Indian economy to “stable” from “negative”, as the downside risks from negative feedback between the real economy and financial system are receding, the agency said.
“The decision to change the outlook to stable reflects Moody’s view that the downside risks from negative feedback between the real economy and financial system are receding. With higher capital cushions and greater liquidity, banks and non-bank financial institutions pose much lesser risk to the sovereign than Moody’s previously anticipated,” it said.
It added that downside risks to growth 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.
Moody’s expects India’s real GDP to surpass 2019 levels this fiscal year, rebounding to a growth rate of 9.3%, followed by 7.9% in fiscal 2022.
While admitting that risks stemming from a high debt burden and weak debt affordability remain, it 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.
“The affirmation of the Baa3 ratings balances India’s key credit strengths, which include a large and diversified economy with high growth potential, a relatively strong external position, and a stable domestic financing base for government debt, against its principal credit challenges, including low per capita incomes, high general government debt, low debt affordability and more limited government effectiveness,” Moody’s said.
India’s long-term local-currency (LC) bond ceiling remains unchanged at A2 and its long-term foreign-currency (FC) bond ceiling remains unchanged at A3.
The rating upgrade followed after the finance ministry officials met representatives of global ratings agency Moody’s on Sept 28.