Old Indian economic woes combine with COVID-19 dislocation: Moody’s

Tribune News Service

New Delhi, June 1

Moody’s Investors Service has downgraded India’s sovereign rating by one notch and foresees the GDP contracting by four per cent during the current fiscal. But it has still retained India as an investment grade country.

Moody’s cited concerns about a prolonged period of pre-COVID slow growth which has been worsened by the pandemic-induced lockdown. The outlook on India remained negative, it said.

“The decision to downgrade India’s ratings reflects Moody’s view that the country’s policymaking institutions will be challenged in enacting and implementing policies which effectively mitigate the risks of a sustained period of relatively low growth, significant further deterioration in the general government fiscal position and stress in the financial sector,” it said.

Significantly, the rating agency said the COVID-19 epidemic was not the sole reason for the downgrade.

“Rather, the pandemic amplifies vulnerabilities in India’s credit profile that were present and building prior to the shock, and which motivated the assignment of a negative outlook last year,” it noted.

“India will find it tougher to reduce its debt burden, after a significant rise as a result of the COVID-19 economic shock. Before the lockdown, India’s general government debt-to-GDP ratio was estimated at 72 per cent for 2019-20 which will now rise to 84 per cent of GDP this year,” Moody’s said.

“While it should stabilise at that point, it is unlikely to fall materially thereafter,’’ added Moody’s.

Moody’s, along with Nomura, Fitch and Standard & Poor’s, are international rating agencies that comment at least twice a month on India’s likely GDP growth rate and investment potential.

After their negative reports last year, RBI Governor Shaktikanta Das had said while some of their observations were relevant, major foreign investors preferred a first-hand look than rely on their reports.