STATING that it projected India’s economic growth to surpass all other G20 nations for at least the next two years and affirming its ‘Baa3’ sovereign rating with a stable outlook, Moody’s Investors Service. Friday, however, noted that “the curtailment of civil society and political dissent, compounded by rising sectarian tensions” backed a lower rating of political risk and the strength of institutions.
A downgrade is possible, according to New York-based ratings agency Moody’s, which cites “an escalation of political tensions and/or a further weakening of checks and balances that would undermine India’s long-term growth potential” as reasons. In general, if growth is lower than expected, the debt load will continue to climb, putting negative pressure on the sovereign’s fiscal soundness and rating. The grade would also be threatened by a return of financial sector stress that is not managed quickly and efficiently.
The NDA administration’s handling of the budget as a whole, its emphasis on infrastructure development, and the rollout of digital public infrastructure all received high marks from the credit rating agency. Since potential growth has slowed over the previous 7-10 years, “the affirmation and stable outlook are driven by Moody’s view that India’s economy is likely to continue to grow rapidly by international standards,” the report reads.