Business & Economy

Moody’s downgrades India’s sovereign rating to Baa3, keeps negative outlook

New Delhi, Jun 1 (efe-epa).- Credit rating agency Moody’s on Monday downgraded India’s sovereign rating to Baa3 from Baa2, citing challenges that the Indian government could face in implementing policies to tackle a “sustained period of relatively low growth” and deteriorating fiscal condition.

The agency also maintained a negative outlook for the Indian economy, which was already witnessing a slowdown before being paralyzed by over two-months of a strict nationwide lockdown to contain the spread of the new coronavirus.

“India faces a prolonged period of slower growth relative to the country’s potential, rising debt, further weakening of debt affordability and persistent stress in parts of the financial system, all of which the country’s policymaking institutions will be challenged to mitigate and contain,” the Moody’s Investors Service said in a statement.

Moody’s said that although the rating cut came in the context of the coronavirus epidemic, it was not driven solely by its impact, as the outbreak “amplifies vulnerabilities in India’s credit profile that were present and building prior to the shock.”

The downgrade to Baa3 – the lowest investment grade, just above junk status – comes days after official data revealed that India’s GDP growth slipped to an 11-year low of 4.2 percent for the financial year 2019-2020, according to official estimates.

Significantly, the growth rate, which is the slowest since 2009, doesn’t reflect the full impact of the COVID-19-induced shutdown that Prime Minister Narendra Modi imposed on Mar. 25.

“Slow reform momentum and constrained policy effectiveness have contributed to a prolonged period of slow growth, compared to India’s potential, that started before the pandemic and that Moody’s expects will continue well beyond it,” the agency’s statement said.

Moody’s expects the Indian economy to contract by 4.0 percent in the current fiscal year, and although the Indian government has announced a series of stimulus measures before and during the pandemic, the agency said it did not see the long-term growth rate returning to 8 percent, a threshold which India had last crossed in 2016.

India, a $2.9-trillion economy that registered the world’s fastest growth rate between 2014-2018 and had set up an ambitious target of achieving $5 trillion GDP by 2024, now stares at a crisis as manufacturing and retail sectors have slumped and demand has crashed during stringent measures to contain COVID-19.

The country has struggled to death with the new coronavirus and so far reported over 194,000 cases and nearly 5,500 deaths, although the government has gradually eased restrictions in order to revive economic activity. EFE-EPA


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