India’s economy has higher capital cushions and greater liquidity and as such, the risk of negative feedback between the economy and the financial system is decreasing, the agency said. The agency assigned a Baa3 rating to the Indian government with a stable outlook.
“With higher capital buffers and greater liquidity, banks and non-banking financial institutions (NBFIs) pose far less risk to the sovereign than we previously anticipated, facilitating the ongoing post-crisis recovery. pandemic,” he said.
The agency expects India’s economic environment to allow for a gradual reduction in the general government budget deficit over the next few years, thus avoiding a further deterioration in the sovereign credit profile. However, risks related to a higher debt burden and low debt affordability persist.
Moody’s could upgrade the rating if India’s economic growth potential increases materially beyond its expectations, supported by the effective implementation of economic and financial sector reforms that can lead to a significant and sustained recovery in sector investment. private.
A continued increase in India’s debt burden may weaken its fiscal strength and lead to negative rating action.
Moody’s forecasts India’s real GDP to grow 7.6% in FY23 and 6.3% in FY24.
In addition, the agency does not expect growing challenges to the global economy, including the impact of the Russian-Ukrainian military conflict, rising inflation and tighter financial conditions following policy tightening, derail India’s ongoing recovery from the pandemic in 2022 and 2023.
“We expect India’s public debt burden to have peaked at around 84% of GDP in the fiscal year ending March 2021 (fiscal year 2020), up from pre-pandemic levels in recent years. ‘around 70% in FY18. We expect debt to stabilize around 80% of GDP, still well above the Baa-rated peer median of around 55%,’ he said.