New Delhi: Moody’s Investors Service, a global rating agency, on Monday September 29 reaffirmed India’s long-term local and foreign-currency issuer ratings at ‘Baa3‘ with a ‘Stable’ outlook. Additionally, the short-term local-currency rating was also maintained at P-3.The rating is given on the backing of robust economic growth and sound external position.
“The rating affirmation and stable outlook reflect our view that India’s prevailing credit strengths, including its large, fast-growing economy, sound external position, and stable domestic financing base for ongoing fiscal deficits will be sustained,” the agency said in a statement as quoted by PTI.
Economy’s resilience
The decision keeps India at the lowest rung of investment grade (just above junk grade investment) but reflects confidence in the economy’s resilience.
India’s strong growth momentum and a comfortable external buffer lend it stability amid global headwinds such as protectionist measures in advanced economies. Moody’s highlighted that India’s vast domestic market, sturdy foreign exchange reserves, and limited dependency on external debt provide a cushion against global macroeconomic and geopolitical shocks such as Trump tariffs and the Russia-Ukraine War, thereby maintaining capital flow.
However, there exist some weaknesses on India’s part, and the rating agency cautioned that fiscal weaknesses continue to weigh heavily on India’s credit profile. Despite India growing rapidly and its sustained GDP growth, the government’s high debt burden and sustained interest payment, which is among the highest in the Baa-rated peer group, are expected to decline only slowly.
Follows upgrade by S&P Global Ratings
The government’s recent fiscal reforms, coupled with those of RBI’s monetary policy measures, are aimed at bolstering consumption, thereby contributing to overall growth of the economy. However, these measures are also seen as eroding the revenue base, further limiting the fiscal space of the government.
The new affirmation comes just weeks after S&P Global Ratings upgraded India’s sovereign rating to ‘BBB’ from ‘BBB-’, its first such upgrade in over 18 years. However, Moody’s chose to stick with the earlier ratings by not upgrading the outlook and keeping it at a stable outlook. The stable outlook signals confidence that India’s growth and external resilience will balance its fiscal challenges.