Soothing the nerves after weak monsoon predictions, Moody’s Investor Service has underscored that its rating action on India wasn’t dependent on one particular monsoon, though a 'monsoon shock' represents a near-term risk. This development came right after India Meteorological Department predicted below normal monsoon for second successive year. It predicted that monsoon was likely to be below normal in the current year at 93% with parts of north-western and central India being the mostly affected areas.
The agency highlighted that rating incorporates policies to address these vulnerabilities to monsoon. However, it did warn that India was unique among countries in term of impact that drought had on inflation and growth. In related terms, global rating agency noted that a growth rate of more than 7.5% may not be 'sustainable' for India in the present scenario and the country was required to resolve tax issues that are impacting its investment climate. It also stated that rise in inflation could pose a potential risk to the country’s sovereign rating.
The rating agency asserted that it was confident of the government putting in motion policies to address these vulnerabilities to monsoon and that it was inability to pursue these policies in terms of irrigation, infrastructure and food distribution that could impact the rating of the country. Further, it outlined that political shift reversing policy efforts, sharp rise in commodity prices could act as risk to rating outlook. Lastly, it also suggested India to direct its policy efforts towards lowering inflation, improving infrastructure and regulatory environment and fiscal consolidation. Moody's has a 'Baa3' rating on India, with a positive outlook.