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NEW DELHI: Global ratings agency Moody’s Investors Service on Friday affirmed India’s sovereign rating at Baa3 and retained the outlook as stable, citing the country’s strong growth and strengthening financial sector. The agency said that the Baa3 rating and stable outlook take into account a curtailment of civil society and political dissent, compounded by rising domestic political risk.
“The affirmation and stable outlook are driven by Moody’s view that India’s economy is likely to continue to grow rapidly by international standards, although potential growth has come down in the past 7-10 years,” the agency said.
The Baa3 is the lowest investment grade rating. S&P and Fitch also have a similar rating for India with a stable outlook. The action by ratings agencies will help add to positive sentiment and reduce the cost of borrowing for firms.
“High GDP growth 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 high levels,” said Moody’s.
It said it expects India’s economic growth to outpace all other G20 economies through at least the next two years, driven by domestic demand. Moody’s said the government’s ongoing emphasis on infrastructure development has led to tangible improvements in logistics performance and the quality of trade and transport-related infrastructure.
Moody’s said the central bank’s prompt policy tightening has led to a fall in headline inflation.
The agency said the curtailment of civil society and political dissent, compounded by rising sectarian tensions, support a weaker assessment of political risk and the quality of institutions. It said that the recent event illustrative of these trends is the eruption of unrest in the north-eastern state of Manipur that has led to at least 150 deaths since May 2023, and underpinned a no-confidence vote on Prime Minister Narendra Modi in August, although this was ultimately unsuccessful.
“Although elevated political polarisation is unlikely to lead to a material destabilisation of government, rising domestic political tensions suggest an ongoing risk of populist policies – including at the regional and local government levels – amid the prevalence of social risks,” said the agency.
“The affirmation and stable outlook are driven by Moody’s view that India’s economy is likely to continue to grow rapidly by international standards, although potential growth has come down in the past 7-10 years,” the agency said.
The Baa3 is the lowest investment grade rating. S&P and Fitch also have a similar rating for India with a stable outlook. The action by ratings agencies will help add to positive sentiment and reduce the cost of borrowing for firms.
“High GDP growth 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 high levels,” said Moody’s.
It said it expects India’s economic growth to outpace all other G20 economies through at least the next two years, driven by domestic demand. Moody’s said the government’s ongoing emphasis on infrastructure development has led to tangible improvements in logistics performance and the quality of trade and transport-related infrastructure.
Moody’s said the central bank’s prompt policy tightening has led to a fall in headline inflation.
The agency said the curtailment of civil society and political dissent, compounded by rising sectarian tensions, support a weaker assessment of political risk and the quality of institutions. It said that the recent event illustrative of these trends is the eruption of unrest in the north-eastern state of Manipur that has led to at least 150 deaths since May 2023, and underpinned a no-confidence vote on Prime Minister Narendra Modi in August, although this was ultimately unsuccessful.
“Although elevated political polarisation is unlikely to lead to a material destabilisation of government, rising domestic political tensions suggest an ongoing risk of populist policies – including at the regional and local government levels – amid the prevalence of social risks,” said the agency.
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