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  3. India’s rating at ‘stable’ despite slowdown in GDP growth: Moody’s

India’s rating at ‘stable’ despite slowdown in GDP growth: Moody’s

25 Jun 2012 Evaluate

Global rating agency, Moody’s Investor Services has maintained a ‘Stable’ outlook on India’s sovereign debt rating of Baa3 in spite of problems such as high inflation, slowing economic growth, weak fiscal performance and feeble investment scenario, which are hurting the economic growth of the country. The global rating agency, however, voiced its concern by stating that the global and domestic factors coupled with low agricultural production could negatively impact India’s growth and keep it below trends in the next few quarters.

At the same time, Moody’s said the negative trends like low growth and slowing investment will neither be permanent nor will it be there in the medium term features of the Indian economy. Although the impact of India’s lower growth and high inflation will deteriorate the credit metrics in the short term but it will not become irreconcilable with India’s current rating.

The rating agency’s decision will give the government a much needed relief as it has come in the face of a cut in outlook from Fitch from ‘stable’ to ‘negative’.  While, Standard and Poor's warning that India could become the first ‘fallen angel’ among the BRIC countries, if it lost its investment grade rating, mainly on the back of slowing GDP growth and political roadblocks in policymaking.

India’s widening fiscal deficit has sharply increased its current account deficit and has sent the rupee to its fresh all time lows against the dollar. Moody’s also highlighted that India’s limited foreign currency debt will protect the government from any external increase in its debt burden due to sharp fall in rupee.

India’s economic growth slowed to 6.5% in 2011-12, while growth for the March quarter registered 5.3%, the lowest in 9-years. Further, the fiscal deficit for the current financial has been pegged at 5.1% of GDP, after having climbed to 5.9% in FY-12 from a estimated 4.6%.

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