Moody’s lowers India rating citing low growth prospects
02 Juin, 2020, 09:26 | Auteur: Auguste Feret
Moody's also lowered India's long-term foreign-currency bond and bank deposit ceilings to Baa2 and Baa3, from Baa1 and Baa2, respectively.
Moody's maintained a negative outlook for the new sovereign rating, citing worsening government finances as the coronavirus continues to hurt the economy. This means, India is just one notch above the non-investment grade or junk grade.
Modi's government has announced a number of steps to help the poor and small businesses weather the pandemic, but Moody's said it does not expect the measures to push India's growth rate back towards the 8% that had recently seemed within reach.
India's GDP growth slipped to an 11-year low of 4.2 per cent in 2019-20, while the fiscal deficit expanded to 4.6 per cent of the GDP as against the revised estimate of 3.8 per cent of GDP in the previous financial year.
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Moody's Investors Service said stress among Indian lenders may be "deeper and broader" than it thought, adding more risks to the already battered economy.
The ratings agency has noted that its upgrade of India to Baa2 in November 2017 was "based on the expectation that effective implementation of key reforms would strengthen the sovereign's credit profile through a gradual but persistent improvement in economic, institutional and fiscal strength".
"India faces a prolonged period of slower growth relative to the country's potential, rising debt, further weakening of debt affordability and persistent stress in parts of the financial system, all of which the country's policymaking institutions will be challenged to mitigate and contain", it said. However, implementation of these reforms since then has been "relatively weak" and has not resulted in material credit improvements, indicating limited policy effectiveness, it said. Moody's does not expect the credit crunch in India's undercapitalised financial sector to be resolved quickly.
Together with the immediate coronavirus-related policy support, the government has announced a series of reforms aimed at enhancing productivity, investment, employment and the ease of doing business across a variety of sectors including agriculture, mining, defence and power.
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