Recent fall in rupee unlikely to impact India’s sovereign rating: Moody’s

The recent depreciation in the rupee is unlikely to impact India’s sovereign rating says global rating agency Moody’s Investors Service. However, it will affect the repaying capacity of private companies that have large overseas debt. These observations are based on the fact that the Indian government only owes 7% of its debt to overseas lenders.

Moreover it is owed to bilateral and multilateral creditors and has a maturity profile that keeps annual foreign currency repayments relatively low. Hence the impact of the depreciation of rupee is expected to be limited. 

On the other hand, private companies may feel the pinch as the cost of paying back foreign currency borrowings will rise. Indian companies in this year together face foreign currency convertible bond redemptions of nearly $7 billion (Rs 38,000 crore). However, none of this is likely to assume the proportion that the balance of payment crisis in 1991 had. This is because India’s total private sector external debt is at a relatively low 16% of GDP.

Moody’s has also given a thumbs up to  government’s decision of providing Rs 38,500 crore as subsidy to the oil marketing companies as it will help them tide over a difficult situation. This amount is over and above the Rs 45,000 crore already doled out for the first nine months of FY12.

Together with the additional payout agreed, the government will make up 60% or Rs 83,500 crore of the total revenue loss. Indian Oil Corp (IOC), Hindustan Petroleum Corp (HPCL) and Bharat Petroleum Corp (BPCL) lost a record Rs 1,38,541 crore on selling diesel, domestic LPG and kerosene at government-controlled rates that were way lower than market price.