Rating agency Moody’s Investors Service has reaffirmed India’s rating as a long-term local and foreign-currency issuer at Baa3, with a stable outlook, on its view that the economy is likely to continue to grow rapidly by international standards despite potential growth slipping in the past seven to 10 years.
While noting that India’s potential output remains below the pre-pandemic peaks, Moody’s said it expects the country’s economic growth to outpace all other G20 economies through at least the next two years, driven by domestic demand. For long term issuers, a Baa rating implies a moderate credit risk and may possess certain speculative characteristics.
Though the rating major believes that monetary and macro policy effectiveness has strengthened, it flagged concerns about weakening institutions and rising political tensions, citing the eruption of unrest in Manipur that has led to at least 150 deaths since May.
“The curtailment of civil society and political dissent, compounded by rising sectarian tensions, support a weaker assessment of political risk and the quality of institutions,” it said in a rating action note on Friday.
“Although elevated political polarisation is unlikely to lead to a material destabilisation of government, rising domestic political tensions suggest an ongoing risk of populist policies — including at the regional and local government levels — amid the prevalence of social risks such as poverty and income inequality, as well as inequitable access to education and basic services,”
India’s fiscal metrics are expected to gradually improve, Moody’s said, but cautioned about upside risks to inflation and correspondingly higher interest rates, which could challenge efforts to rein in spending and exacerbate already weak debt affordability.
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