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  3. Moody’s lifts India’s rupee debt rating by one notch to lowest investment grade

Moody’s lifts India’s rupee debt rating by one notch to lowest investment grade

21 Dec 2011 Evaluate

Global credit ratings agency Moody's Investor Service has lifted India’s local currency debt rating by one notch to the lowest investment grade, in-line with the foreign currency bond ratings at Baa3 with a stable outlook. The global rating agency highlighted that India’s stable outlook indicates Moody’s medium-term assessment of Asia’s third largest economy’s growth, fiscal, and balance of payments outlook, relative to other countries.

The rating agency had earlier rated rupee denominated sovereign debt at the highest junk grade of Ba1 while the foreign currency bond rating remained at Baa3 previously as well.  Though the agency acknowledged the fact that India's economic growth will continue to slow over the next two quarters, however it was convinced that the GDP growth rate for Asia’s third largest economy will remain above the average for similarly rated countries.

The US-based Moody's also has not ruled out the chances of upgrading India’s credit rating as it said that the rating can be considered for an upgrade provided Indian government finances improve, investment climate enhances and infrastructure bottlenecks reduce. The rating agency has forecasted that India’s GDP growth will ease to below 7% in the fiscal year ending March 2012 while it expects the nation’s budget deficit to widen to about 7.6% of GDP in the period.

Moody’s highlighted that credit strengths that led to stable outlook for India’s rating are large, diversified economy, robust medium-term growth prospects and a strong domestic savings pool that aids the financing and refinancing of the government's relatively high debt burden. However, the credit challenges that face the nation are wide and persistent fiscal deficits, a policy process often hamstrung by domestic politics, susceptibility to inflationary pressures, and the limitations that poor social and physical infrastructure place on growth.

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