India’s sovereign rating outlook is stable, ratings agency Moody’s Investors Services said on Tuesday.
Moody’s stable outlook is based on expectations that India’s structural strengths — a high household savings rate and relatively competitive private sector — will ultimately raise the GDP growth, it said in its annual credit analysis report on India.
The report is an update to the markets and does not constitute a rating action.
The ratings agency expects India’s GDP growth rate to go up from around 5.4 per cent in 2012-13 to six per cent or higher in 2013-14, with the higher growth accompanied by improved fiscal and balance of payments metrics.
Moody’s forecast is underpinned by the assumption that, over the next year, there will be a cautious reduction in monetary policy rates and further measures to revive investor sentiment.
WORRYING POINTS
However, unanticipated domestic political turmoil, further deceleration in global growth and financial conditions, or a surge in food and other commodity prices could affect the pace and timing of the recovery, said Moody’s.
India’s Baa3 rating and stable outlook are supported by credit strengths that include a large, diverse economy, strong GDP growth and savings, and investment rates that exceed emerging market averages, the report said.
It, however, said the rating was constrained by credit challenges posed by India’s poor social and physical infrastructure, low per capita income, high Government deficit and debt ratio.
The rating has also been constrained due to the country’s complex regulatory environment and a tendency towards inflation.
The Government aims to restrict the fiscal deficit to 5.3 per cent of GDP this fiscal. It has also announced a slew of measures to spur infrastructure development and liberalised foreign direct investment norms.
However, given the delayed timing and modest scope of these measures, growth may remain subdued in the near term amid continued domestic political uncertainty and global slowdown.
Moody’s had last week projected the Indian economy to have grown by little over 5.5 per cent in the July-September quarter.
The Central Statistics Office is due to release the second quarter GDP numbers on November 30. The street estimate is that GDP growth could range between 5-5.5 per cent in the September quarter. Policymakers are hopeful of GDP growth being little more than 5.5 per cent.