Thaindian News

Chennai, June 25 (IANS) Global credit rating agency Moody’s Monday announced that it is maintaining a stable outlook on India’s Baa3 rating as problems such as low economic growth, high inflation and an uncertain investment policy were long-standing and already factored into the outlook.

In a statement, Moody’s Investors Service said it is “maintaining its stable outlook on India’s rating as various credit challenges - such as weak fiscal performance, tendency towards inflation and an uncertain investment policy environment - have characterised the Indian economy for decades, and are already incorporated into the current Baa3 rating”.

On the other negative trends, afflicting the Indian economy - lower growth, slowing investment and poor business sentiment - Moody’s said they are unlikely to become permanent or even medium-term features.

It expects that global and domestic factors, including potential shocks in agriculture, could keep India’s growth below trend for the next few quarters.

“Moody’s notes that its ratings express a view on medium-term sovereign credit worthiness and do not generally change with fluctuations in growth related to the direction of the business cycle at a particular point, if Moody’s believes growth will recover and sustain over time,” the statement said.

Furthermore, the impact of lower growth and still-high inflation will deteriorate credit metrics in the near term, but not to the extent that they will become incompatible with India’s current rating, Moody’s said.

With regard to budget deficits, Moody’s said the Indian government’s debt and fiscal deficit ratios have always been worse than those of similarly rated peers. But its own assessment of low government financial strength is based not merely on a comparison of ratios, but also on the underlying reasons for weak government finances.

“These lie in the role fiscal policy plays in maintaining social stability in a highly diverse, poor and unequal society, which limits government revenues and imposes demands on government expenditure,” Moody’s said.

“This poverty constraint is effectively factored into the rating by assigning India a ‘moderate’ economic strength assessment, despite the well above global average size and growth rates of its economy,” Moody’s said.

On the issue of the rupee’s depreciation, Moody’s said that as the government’s foreign currency debt comprises only 5.3 percent of its total debt and is equivalent to 3.8 percent of gross domestic product (GDP), the rupee’s decline does not raise the government’s own debt service burden significantly, especially since most of its foreign currency debt is owed to multilateral and bilateral creditors with low annual repayment requirements.