NEW DELHI: Moody’s on Friday retained India’s rating, maintaining a stable outlook and projecting well over 6% economic growth over the next two fiscal years.
The global rating agency kept the country’s long-term and short-term ratings unchanged at Baa3 and P-3, respectively, after a periodic review, citing a gradual improvement in fiscal metrics amidst robust growth prospects.
“The credit profile of India balances its large and diversified economy with high growth potential, a relatively sound external position, and a stable domestic financing base for government debt against high general government debt, weak debt affordability and low per capita income,” Moody’s said.
It forecast the Indian economy to expand 8% in FY24, higher than 7.6% projected by the government and 6.6% it had predicted earlier in November 2023, noting that the ongoing infrastructure push is likely to help growth.
Investment has been one of the primary growth drivers for the country, recording double-digit growth in FY24.
The ratings agency noted that investments could receive further fillip in the coming year, powered by a revival of private spending, which could push growth further.
“There are upside risks to the projections, based on the potential for private consumption to benefit from ongoing disinflation, while private investment could rise as election-related uncertainties clear and policy rates start to fall as inflation normalises within the Reserve Bank of India’s target band,” it said.
Experts have been talking about a likely rate cut by the Reserve Bank of India (RBI) at the June or August meeting of its monetary policy committee (MPC).
In its last budget before the general elections, the central government reiterated its commitment to bringing the fiscal deficit down to 4.5% of GDP by FY26. The fiscal deficit target for the current fiscal year is set at 5.1%.
Moody’s noted that a material decline in debt burden could exert upward pressure on ratings.
“This would likely entail the effective implementation of new and existing structural reforms that resulted in a significant pickup in private sector investment, higher GDP per capita, and broader economic diversification, for instance, in higher value-added manufacturing or digital services,” it said.
But Moody’s pointed out that inflationary pressures, political tensions and/or a further weakening of checks and balances that would undermine India’s long-term growth potential and could push rating downward.
On the other hand, it said the economic and social benefits of digitalisation could be larger than currently assumed.
On the environmental front, Moody’s assigned an ESG credit impact score of 4 to the government, given its low resilience to environmental and social risks.
“These challenges constrain a more rapid expansion of manufacturing and consequently faster increases in GDP per capita, while contributing to social welfare spending,” it said.
Source: The Economic Times