Moody’s says India’s rating outlook is stable

 Moody's said on Tuesday that the outlook on its Baa3 rating for India is stable, in part due to the country's high savings and investment rates, as debate rages here over whether the country can avoid credit downgrades from other rating agencies. 

In its annual credit analysis on India, which Moody's said does not constitute a rating action, the agency also cited the country's large, diverse economy and strong gross domestic product growth as supportive of the rating. 

However, Moody's said: "The rating is constrained by the credit challenges posed by country's poor social and physical infrastructure, high government deficit and debt ratios, recurrent inflationary pressures and an uncertain operating environment." 

Moody's said that although country's GDP growth remains above that of its rating peers, it has slowed from about 8.4% in FY 2010 and FY 2011 to 5.3% in the first half of 2012. Persistent domestic inflation and wide fiscal deficits precluded domestic policy loosening to combat the global growth downturn over the last year. 

Starting in September 2012, the government announced measures to spur infrastructure development, allowed increased foreign investment, and rein in the fiscal deficit. However, in Moody's view, given the delayed timing and still modest scope of these measures, growth may remain subdued in the near term amid continued domestic political uncertainty and a global slowdown. 

According to Moody's the government's annual deficits tend to be among the highest within the Baa range, and have proven relatively more vulnerable to growth downturns due to elastic revenues and rigid expenditures. Although absolute debt levels have risen steadily, the government's debt to GDP ratio has been declining over the last few years, partly due to higher inflation. 

Last month, Standard & Poor's warned India still faced a one-in-three chance of a credit rating downgrade over the next 24 months, although it said a series of reform steps launched in September had slightly improved the country's prospects. 

Fitch also has a negative outlook on India. Having faced a series of revenue-raising setbacks, the government is grappling with a widening fiscal deficit that threatens to undermine the country's credit standing and possibly trigger a downgrade to junk status. 

Finance Minister P Chidambaram has an ambitious target of holding the government's fiscal deficit for 2012/13 at 5.3 per cent of gross domestic product, even as sceptical private economists forecast a deficit closer to 6 per cent.


Source: Indiatimes