Moody's reiterates ‘stable' outlook on India

Even as Standard & Poor's revised the outlook on India's long-term rating to negative from stable, rival credit rating agency, Moody's reiterated that the outlook on the country's ratings is stable.

Moody's said the relatively strong GDP growth is likely to remain a credit strength over the medium term. However, government deficits and debt ratios will also continue to surpass those of similarly-rated peers.

The risk posed by the high government debt burden is mitigated by the availability of a deep domestic savings pool to finance it.

The agency assessed that balance of payments pressures may persist during a period of global risk aversion, but India's foreign exchange reserves are large enough, relative to the country's current account deficit and annual external debt repayment needs, to allow the economy to weather current high oil prices and portfolio investment volatility.

Moody's said India's Baa3 government bond ratings incorporate credit strengths such as a diversified economic structure, strong actual and potential growth, a high domestic savings rate and a comfortable balance of payments position.

Further, they also take into account challenges such as weak government finances, a policy process often hamstrung by domestic politics, susceptibility to inflationary pressures and infrastructure constraints on future growth. “We assess India's economic strength as moderate on a relative basis, incorporating the large size, sectoral diversity and rapid growth rate of the economy, as well as the still low levels of per capita income and the limitations of weak social and physical infrastructure.

“India's average GDP growth rate has outperformed similarly rated peers in the last decade, and we expect India's relatively strong savings and investment rates to sustain future growth,” said a Moody's report.

The agency has estimated India's real GDP growth at 7 per cent in FY2013.

Revising the outlook on India's long-term rating to negative from stable, S&P credit analyst, Mr Takahira Ogawa, said: “The outlook revision reflects our view of at least a one-in-three likelihood of a downgrade if the external position continues to deteriorate, growth prospects diminish, or progress on fiscal reforms remains slow in a weakened political setting.”

S&P expects that India's real GDP per capita growth will likely remain moderately strong at 5.3 per cent in the current fiscal year ending March 31, 2013, compared with about 6 per cent on average over the prior five years, but down from 8 per cent in the middle of the last decade.

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