The Covid-19 pandemic and subsequent lockdowns were hard on the economy. The rampant job losses and lack of demand for goods caused India’s net GDP growth to go negative by 7.3% in the fourth quarter of the fiscal. Since then, improving and uplifting the economy has been a major concern for the government and a lot of new packages and reforms has been introduced. Owing to last year’s recessions, the Indian economy slipped in many ratings and outlooks by international organizations, such as Moody’s, and has only been improved recently.
What is Moody’s?
If you had kept an eye on financial news anytime in the past month, you must have come across the name. Moody’s Investors Service rates fixed-income debt securities and provides international financial research on bonds issued by commercial and government entities. Moody’s Analytics develops software and tools to help capital markets with risk management, credit analysis, and economic research. Both are owned by Moody’s Corporation.
The Previous Rating
In June 2020, Moody’s had downgraded India’s sovereign rating outlook a notch to Baa3 from Baa2 citing challenges in the implementation of policies to mitigate risks of a sustained period of slow growth and deteriorating fiscal position. The outlook was downgraded to negative in November 2019.
Earlier in September, India’s top officials pitched for an upgrade in the sovereign rating outlook from the negative, which included Chief Economic adviser K V Subramanian also meeting the representatives on future prospects.
The upgrade in rating and what it means for the economy
The agency has changed India’s sovereign rating outlook to ‘Stable’ from ‘Negative’ citing “While risks stemming from a high debt burden and weak debt affordability remain, Moody’s expects that the economic environment will allow for a gradual reduction of the general government fiscal deficit over the next few years, preventing further deterioration of the sovereign credit profile”. It also said India’s key credit strengths, include a large and diversified economy with high growth potential, but it retained the ratings, both on foreign and domestic currencies, at the lowest investment grade of Baa3.
The improvement is mitigated by rising vaccination drives and fewer restrictions on the economy. It has also indicated that it expects real GDP to surpass pre-pandemic levels of 2019-20 this year itself. The agency has also affirmed India’s other short-term local currency rating at “P-3”.
India’s GDP also surged 20.1% in the April-June quarter of FY22. With many packages, the ongoing economic recovery is also picking up pace with expectations of 9.3% growth in GDP in 2020-21, followed by 7.9% next year. “The four-notch gap between the LC ceiling and issuer rating reflects limited political event risk that would significantly disrupt the economy and modest external imbalances, balanced by a large government footprint in the economy and limited predictability and reliability of government policies”, it stated.
Other Ratings and Outlooks of the economy
Another global agency S&P Global Ratings, in its report, had said that it sees “no change” in the country’s sovereign rating for the next two years and has also kept it at the lowest investment rating of BBB- with a ‘Stable’ outlook.
Fitch, however, gave a ‘Negative’ outlook with BBB- rating, which is also the lowest on its scale.