Moody's maintains stable outlook on India's sovereign ratings

But says govt finances the weakest aspect of the country's macroeconomic profile

Unlike the views held by two of its peers — Standard & Poor’s and Fitch — Moody’s Investors Service has retained stable outlook on India’s sovereign ratings, at Baa3, the lowest level in investment grade. It has, however, said government finances are the “weakest aspect of India’s macroeconomic profile”.

“The stable outlook on India’s rating balances Moody’s assessment of its credit strengths and weaknesses, relative to other rated sovereigns,” the agency said in its latest credit analysis on India, released on January 17. The information was provided by the finance ministry here on Saturday.

Earlier, S&P and Fitch had also given India Baa3 ratings, but later downgraded the outlook on these ratings, indicating there were chances of downgrade of these ratings to junk.

The Moody’s stance has come as a relief to the finance ministry, struggling to convince the rating agencies to look at the promising parameters of the country’s economy.

The agency counted India’s potential GDP growth, robust savings rate and a dynamic private sector as strengths, and high fiscal deficit, debt ratios and supply constraints in the form of infrastructure, policy and administrative inefficiencies as constraints on credit profile.

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“We expect India’s relative strong savings and investment rates to sustain future growth,” it said.

It added India’s average GDP growth over the past decade had outperformed other similarly rated economies.

On institutional strengths, Moody’s included long tradition of checks and balances between the legislature, the judiciary and the executive. “Transparent monetary policy and vigilance in financial supervision also provide institutional support,” it said.

However, it cautioned against slow policy-making and implementation, besides corruption. On its assessment of the government finances as the weakest aspect of credit profile, the agency said it was based on high debt ratios and fiscal deficits.

“We expect the fiscal position to remain weaker than peers over the medium term,” Moody’s said. However, thanks to the high private-sector savings rate, and the banking system, the government was able to finance its significant annual gross borrowing requirement domestically, and had managed to extend the average maturity structure of its debt, it said.

The government debt was about 70 per cent of GDP, it said. “Lowering of this ratio from even higher levels over the past few years has been largely due to high inflation, rather than fiscal consolidation,” it said.