From Negative To Stable, Moody’s Changes India’s Rating Outlook – Free PDF Download

• Moody’s Investors Service provides international financial research on bonds issued by-
• Commercial and government entities.
• Moody’s, along with Standard & Poor’s and Fitch Group, is considered one of the Big Three credit rating agencies

What has happened?

• Moody’s Investors Service has changed the outlook on India’s ratings to “stable” from “negative”.
• It has affirmed the country’s foreign-currency and local-currency long-term issuer ratings and the local-currency senior unsecured rating at “Baa3”.
• Moody’s has also affirmed India’s other short-term local currency rating at “P-3”.

• ‘Baa3’ is the lowest investment grade – just a notch above junk status.
• Moody’s Investors Service had last year downgraded India’s sovereign rating to ‘Baa3’ from ‘Baa2’,
• Saying there will be challenges in the implementation of policies to mitigate risks of a sustained period of low growth and deteriorating fiscal position.

reason for the downgrade?

• Weak implementation of economic reforms since 2017.
• Relatively low economic growth over a sustained period.
• A significant deterioration in the fiscal position of governments (central and state).
• And the rising stress in India’s financial sector.

What are the reasons?

• The global financial research agency said the decision to change the outlook to “stable” reflects its 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 a much lesser risk to the sovereign than Moody’s previously anticipated,“ Moody’s said in its latest report.
• The ratings agency said while risks stemming from a high debt burden and weak debt affordability remain,
• It expects the economic environment will allow for a gradual reduction of the general fiscal deficit over the next few years, preventing further deterioration of the sovereign credit profile.

significance

• The rating change comes a few days after India’s top officials made the case for sovereign rating upgrade.
• However, another global agency S&P Global Ratings, in its May report, had said that it sees “no change” in the country’s sovereign rating for the next two years.

Fiscal deficit

• The Centre’s fiscal deficit in the April-July 2021 period came in at only 3% of full-year budget estimate (BE), mainly on account of curbs on expenditure and a rise in tax and non-tax revenue collection.
• In the same period last fiscal, deficit was 103% of the annual target.
• The government had pegged its gross borrowing target for current fiscal at Rs 12.5 lakh crore in the 2021-22
• In line with its Budget estimates, the Centre has announced it would borrow Rs 5.03 lakh crore in the October-March period.

Economic recovery

• In its report, Moody’s said that economic was recovery is underway with activity picking up and broadening across sectors.
• “Following a deep contraction of 7.3% in FY2020-21, Moody’s expects India’s real GDP to surpass 2019 levels this fiscal year, rebounding to a growth rate of 9.3%, followed by 7.9% in fiscal 2022.
• Moody’s said that downside risks to growth from subsequent coronavirus infection waves were mitigated by rising vaccination rates.

conclusion

• Moody’s said that the various economic relief measures announced by the government over the past year and a half.
• If implemented effectively, would be credit positive and could lead to higher potential growth than expected.

Q) What is the India’s first credit rating agency which was incorporated in 1987?

1. CARE
2. ICRA
3. CRISIL
4. ONICRA

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