Moody’s retains India rating with stable outlook

It sees India’s debt burden stabilising around 80% of the GDP, which is still higher than similarly-rated countries.
Moody's (File Photo | Reuters)
Moody's (File Photo | Reuters)

NEW DELHI: While rating agency Moody’s on Tuesday retained India’s Baa3 (stable) credit rating with a stable outlook, it sees India’s low per capita income and high general government debt as major risks in the future.

The agency said in its latest rating update that India’s still low incomes limit households’ capacity to absorb domestic, external or weather related shocks. As per the rating agency, India’s per capita income increased to about $7,300 on a purchasing power parity-adjusted basis in 2021 from nearly $4,500 in 2011, but remains much lower than the Baa-rated median of more than $27,000 in 2021.

It says Indian households’ limited capacity to absorb shocks could exacerbate stresses from uneven distribution of income given large proportion of the labour force is employed in the informal and agriculture sector.

Moody’s also highlighted that India’s economy is highly exposed to climate change risks. It cites India’s excessive dependence on monsoon for agriculture, excessive use of groundwater and rising temperatures as key risks in near future.

On high government indebtedness, the rating agency said the country’s general government debt burden is higher and debt affordability is lower compared with Baa-rated peers. Though it believes that general government debt burden has peaked at nearly 84% of GDP in the fiscal year ending March 2021, up from pre-pandemic levels of about 70% in fiscal 2018.

It sees India’s debt burden stabilising around 80% of the GDP, which is still higher than similarly-rated countries. However, the agency feels that India’s stable domestic financing base and high savings would mitigate fiscal risks posed by high government debt and weak debt affordability.

On the positive side, Moody’s said India’s credit profile and stable outlook reflect high growth potential of its large and diversified economy, a relatively strong external position, and a stable domestic financing base for government debt.

The agency further says that the country’s stable outlook reflects the receding impact of the risks from negative feedback between the economy and financial system.

Moody’s report in a nutshell

  • Moody’s estimates India’s real GDP growth at 7.6% in 2022
  • It holds low per capita income and high general government debt as major risks in the future
  • India's per capita income at $7,300 (PPP basis) much lower than $27,000 for similar-rated peers
  • India’s debt burden to stabilise around 80% of the GDP in 2022, 2023
  • India's economy is highly exposed to climate change risks

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