Moody’s rating agency has decided that India will remain at investment grade Baa3, with a stable outlook. In short, this means that the country’s economy is indeed large and fast-growing, and its external position and domestic finances are resilient enough to handle the ongoing fiscal deficit.
However, credit advantages are offset by persistently weak fiscal metrics. India’s budget is somewhat shaky, and recent measures to stimulate consumption have only reduced government revenue, complicating the path to fiscal health.
Moody’s forecasts a very slow decline in the debt burden, but the debt servicing outlook remains less than ideal. On top of that, the high level of fiscal support for private consumption continues to erode the tax base.
In bond ratings, India remains at A2 and A3, but the gap between the sovereign rating and the bond ceiling reflects moderate external imbalances as well as the relatively large role of the government in the economy.
Overall, Moody’s emphasizes that India faces external challenges and there are obstacles, but the country is making progress. Still, progress remains measured and cautious, with India advancing gradually rather than making rapid strides.
