new delhi ,oct 6
International ratings agency Moody’s on Tuesday upgraded India’s rating outlook to ‘stable’ from ‘negative’, saying a recovery is underway in Asia’s third-largest economy and growth this fiscal will surpass the pre-pandemic rate.Moody’s Investors Service however kept India’s sovereign rating at ‘Baa3’ – which is the lowest investment grade, just a notch above junk status.
The change in the rating outlook to ‘stable’ from ‘negative’, which was assigned in November 2019, reflected receding downside risks to the economy and financial system.”An economic recovery is underway with activity picking up and broadening across sectors,” Moody’s said.
Following a deep contraction of 7.3 per cent in fiscal 2020 (ended March 2021), Moody’s expects India’s real GDP to surpass 2019 levels this fiscal year (April 2021 to March 2022), rebounding to a growth rate of 9.3 per cent, followed by 7.9 per cent in the next financial year. “Downside risks to growth from subsequent coronavirus infection waves are mitigated by rising vaccination rates and more selective use of restrictions on economic activity, as seen during the second wave,” it noted.The US-based rating firm had in 2020 lowered India’s rating from ‘Baa2’ with a ‘negative’ outlook, saying there would be challenges in policy implementation amid low growth and deteriorating fiscal position. In a statement on Tuesday, Moody’s said “the decision to change the outlook to stable reflects Moody’s view that the downside risks from negative feedback between the real economy and financial system are receding.”With higher capital cushions and greater liquidity, banks and non-bank financial institutions pose much lesser risk to the sovereign than Moody’s previously anticipated.”And while risks stemming from a high debt burden and weak debt affordability remain, Moody’s expects that the economic environment will allow for a gradual reduction of the general government fiscal deficit over the next few years, preventing further deterioration of the sovereign credit profile,” it added.It further said that solvency in the financial system has strengthened, improving credit conditions which Moody’s expects to be sustained as policy settings normalise.In addition, banks have strengthened their capital positions, pointing to a stronger outlook for credit growth to support the economy.Looking ahead, Moody’s expects real GDP growth to average around 6 per cent over the medium term, reflecting a rebound in activity as conditions normalise.
