Moody’s Investors Service is a bond credit rating business, which downgraded India’s foreign currency and local currency long term issuer rating to Baa3 from Baa2. This spectacle is a bad impression on India in fiscal and economic growth. This is a challenging situation for the country’s policymaking institutions in executing and implementing policies that strongly relieve the risks of a sustained period of relatively low growth.
As per the rating agency, it also reduced the ratings of the senior unsecured ratings of India’s local currency to Baa2 to Baa3. It shows the negative outlook of the country’s economic growth. The negative outlook leads to more severe and tedious destruction in fiscal strength than Moody’s current projects. This would be badly affected by the deeper stresses in the economy and financial system.
Moody’s has also lowered India’s long-term foreign-currency bond and bank deposit ceilings to Baa2 and Baa3, from Baa1 and Baa2, respectively. They also mentioned that for a longer period, the country may face much slower growth relative to the country’s potential, rising debt, further declining of debt affordability, and enduring stress in parts of the financial system. All these will challenge the country’s policymaking institutions to alleviate and contain.
In November 2017 India’s rating was upgraded to Baa2, this was based on the effective implementation of key reforms that would strengthen the sovereign’s credit profile gradually but it also showed persistent improvement in economic, institutional, and fiscal strength. After 2017, the implementation of these amends has been comparably weak and has not resulted in material credit improvements and limited policy effectiveness.
The agency also added that it was not be driven by the impact of the coronavirus pandemic. The pandemic augments vulnerabilities in India’s credit profile that were present and building before the shock, which motivated the assignment of a negative outlook.
The current status is the short term foreign-currency bond ceiling remains unchanged at Prime-2, and the short-term foreign currency bank deposit ceiling was decreased to Prime-3 from Prime-2 and the long-term local currency bond and bank deposit ceilings were lowered from A1 to A2. All these facts and figures downgrade India’s ratings and it leads to a negative vision in the country’s fiscal and economic strength.
