Global rating agency Moody’s has retained India’s stable outlook on the sovereign rating at Baa3, citing the country's large and diversified economy and healthy private savings rate. However, the agency has pegged average retail inflation at 6.5 percent at end-March 2016, up from 4.6 percent this fiscal.
In its report Moody’s said the country's susceptibility to event risks is ‘moderate’. At this time, banking sector weakness is a key source of susceptibility to event risks. Slower growth coupled with high inflation and interest rates in the last two years have eroded banking sector asset quality and profitability, particularly among state-owned banks.
Moody’s pegged general government balance as percentage of GDP at minus 6.7 percent next fiscal, a marginally higher from minus 6.9 percent this fiscal and predicted an improvement in the general government debt to revenues ratio at 302.9 from 309.2, while the government interest payments as part of the GDP will come down to 22.4 percent from 23 percent. The rating agency also sounded positive on current account balance front too, pegging the CAD at -0.6 percent of GDP next fiscal, down from 1.1 percent this fiscal.
The report further citing the high government debt and deficits, weak physical and social infrastructure, recurrent inflation and regulatory uncertainty and complexity as credit challenges for the nation said the government finances are the weakest aspect of the credit profile and accessed it low.
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