'India's rating outlook stable'

Moody's says some negative trends not new and growth expected to recover

Moody’s Investors Service on Monday said it was maintaining its stable outlook on India.

Credit challenges such as a weak fiscal performance and an uncertain investment policy environment had already incorporated into the current Baa3 rating, having characterised the Indian economy for decades, it said.

Certain recent negative trends such as lower growth, slowing investment and poor business sentiment are unlikely, it added, to become permanent or even medium-term features of the Indian economy.

However, there were global and domestic factors, including potential shocks in agriculture that could keep India’s growth below trend for the next few quarters, Moody’s said.

The government on Monday announced steps to increase dollar inflow and stem the rupee’s slide. But markets did not cheer as the steps are not seen raising the economic sentiment.

The ratings, Moody’s said in a statement, expressed a view on medium-term sovereign creditworthiness. They (ratings) do not generally change with fluctuations in growth related to the direction of the business cycle at a particular point, if Moody’s believed growth would recover and sustain over time.

The impact of lower growth and still-high inflation would deteriorate credit metrics in the near term, but not to the extent that’d become incompatible with India’s current rating, it said.

On the impact of the rupee’s depreciation on India’s global obligations, Moody’s said the government’s foreign currency debt comprised only 5.3 per cent of its total debt and was equivalent to 3.8 per cent of gross domestic product.

Hence, the rupee’s decline did not raise the government’s own debt service burden significantly. More so, as most of its foreign currency debt was owed to multilateral and bilateral creditors, with low annual repayment requirements.

RATING AGENCIES’ TAKE ON INDIA
Moody’s	Fitch	Standard & Poor’s
Rating action
Maintains stable  outlook (June 2012)	Lowers outlook to  negative (June 2012)	Lowers outlook to  negative (April 2012) Warns on downgrade to ‘non-investment’   grade (June 2012)
Pressures
Weak fiscal erformance,  uncertain policy environment	Limited progress on  fiscal consolidation	High fiscal deficit,  huge debt burden
Strengths
Robust savings rate,  competitive private sector	High domestic avings  and investment rates. Strong forex reserves	High foreign xchange  reserves
Growth outlook
Growth below 7 per cent  in near term	Decline in pace of  economic growth	Lower economic  growth prospects