Global rating agency Moody’s Ratings has maintained India’s sovereign credit rating at Baa3 and kept the outlook stable. The agency believes that India’s economy has gradually strengthened after the pandemic and its growth prospects remain better than other countries.
Risks increased due to Middle East crisis
However, Moody’s has warned that the ongoing tension in the Middle East may affect India’s economic growth. According to the agency, India’s GDP growth may decline from 7.3% to around 6% in FY27. Due to the increasing global uncertain environment, investment and demand may be affected.
fear of rising inflation
It has been said in the report that inflation may also increase in the coming times. It is estimated to reach around 4.8% in FY27, which is much higher than this year’s 2.4%. There may be pressure on prices due to disruption in LPG supply and increase in fuel and transport costs.
Impact on remittances and trade
According to Moody’s, remittances coming to India from the Middle East are also at risk. About 40% of total foreign remittances come from this sector. If employment there is affected, India’s domestic demand may also weaken. Also, due to trade being affected in this area, there may be pressure on exports.
Strengthened by infrastructure and digitalization
The agency also said that India’s economy is being continuously supported by infrastructure development, digitalization and reforms in the financial sector. This is the reason why despite global challenges the economic situation of the country remains balanced.
It is important to keep an eye on the fiscal situation
Moody’s said India’s debt level is still high and could remain above 80% of GDP in the medium term. The government has set a target of keeping the fiscal deficit at 4.3% in FY27. According to the agency, rating improvement is possible if financial reforms continue, but any laxity may increase the pressure.