News By/Courtesy: TEJAS SHIVALKAR | 04 Jun 2020 10:20am IST

HIGHLIGHTS

  • Rating agency on Monday, Moody's Investor Service lowered the rating from Baa2 to Baa3
  • The Ministry of Finance did not reply to the letter seeking comments on the downgrade ratings
  • According to Moody's rating scale, Baa-rated bonds are deemed to be medium-rated and prone to high credit risk and may have some risky characteristics

Rating agency on Monday, Moody's Investor Service lowered the rating from Baa2 to Baa3, the lowest investment grading rating in India (foreign currency and local currency long-term issuer), and maintained a negative outlook it had set last year. Moody's stated in his statement that the action in connection with the pandemic was taken, but it was not driven by the effect of the pandemic. It represents the Agency 's view that policies that reduce the risks of sustained lower growth, rapid aggravation of government finances, and tension in the financial sector will be opposed by the administration.

As the reasons for the downgrade, the rating agency cited weak reform process, restricted policy efficacy, and a slower pace of growth than India 's capacity. "The pandemic amplifies the credit profile flaws that were present in India and were set up before the hit," said Moody's. Moody's anticipates that the actual Indian GDP growth rate will fall 4% in 2020-21, owing to the coronavirus pandemic shock and associated lock-out steps, and forecasts the economy to rise 8.7% in the next fiscal year and close to 6% in the subsequent year.

Government officials said that India's debt sustainability metrics remained stable, and internal estimates based on the country's expected nominal growth rate and borrowing costs suggested that "there is no concern" on that front. "As growth returns from FY21 onwards, our debt to GDP ratio is expected to improve further," said the Indian Express, a senior government official who did not wish to be named.

The Ministry of Finance did not reply to the letter seeking comments on the downgrade ratings.

Moody's reported that its upgrade of India's Baa2 ratings from Baa3 in November 2017 was focused on the assumption that successful execution of key reforms will boost the sovereign's credit quality through a steady yet sustained improvement in cultural, structural and fiscal performance. However, the implementation of these reforms has since been "relatively weak" and has not resulted in significant credit improvements, indicating limited policy effectiveness, it said.

According to Moody's rating scale, Baa-rated bonds are deemed to be medium-rated and prone to high credit risk and may have some risky characteristics. Both Fitch Ratings and Good & Poor's have the lowest investment-grade ranking and negative outlook for India, so any reduction would now lead to trash.

THIS ARTICLE DOES NOT INTEND TO HURT THE SENTIMENTS OF ANY INDIVIDUAL, COMMUNITY, SECT, OR RELIGION ETCETERA. THIS ARTICLE IS BASED PURELY ON THE AUTHOR'S PERSONAL VIEWS AND OPINIONS IN THE EXERCISE OF THE FUNDAMENTAL RIGHT GUARANTEED UNDER ARTICLE 19(1)(A) AND OTHER RELATED LAWS BEING FORCE IN INDIA, FOR THE TIME BEING. 

Section Editor: Pushpit Singh | 04 Jun 2020 14:44pm IST


Tags : MOODY, India, Ratings, Economic growth

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