Moody's maintains stable outlook on Indian economy

7 Sep 2022 , 07:25 AM

Rating agency Moody’s stated in a study on Tuesday that India’s credit profile reflects several major characteristics, including its sizable and diverse economy with high growth potential, a relatively robust external position, and a secure domestic financing base for government debt.

According to the agency, the risk from the negative feedback between the economy and financial system is decreasing because the Indian economy has stronger capital buffers and greater liquidity. The organization has given the Indian government a Baa3 grade with a stable outlook.

“Banks and nonbank financial institutions (NBFIs) offer significantly less risk to the sovereign than we originally anticipated, supporting the continued recovery from the pandemic,” it stated. “Higher capital buffers and increased liquidity.”

The agency anticipates that over the coming years, India’s economic climate will permit a modest reduction in the general government fiscal deficit, preventing further worsening of the sovereign credit profile. But the dangers of a heavier debt load and poor debt affordability continue.

If India’s economic growth potential increased significantly above estimates, supported by the successful implementation of financial and economic sector reforms that can result in a considerable and sustained increase in private sector investment, Moody’s may upgrade the rating.

Continued debt growth could weaken India’s fiscal stability and result in a rating downgrade.

India’s real GDP is expected to increase by 7.6% in FY23 and 6.3% in FY24, according to Moody’s.

Additionally, the agency does not anticipate any escalating threats to the global economy, such as the impact of the military conflict between Russia and Ukraine, higher inflation, or tightening financial conditions as a result of tightening policy, to thwart India’s ongoing recovery from the pandemic in 2022 and 2023.

For feedback and suggestions, write to us at [e-mail]