The Indian economy has higher capital buffers and more liquidity and as such, the risk of the negative feedback between the economy and the financial system is diminishing, the agency said. The agency has awarded a Baa3 rating to the Government of India with stable outlook.
“With higher capital buffers and greater liquidity, banks and non-bank financial institutions (NBFIs) pose much less risk to the state than we previously expected, facilitating the ongoing recovery from the pandemic,” it said.
The agency expects that the economic environment in India will allow for a gradual reduction of the government deficit in the coming years, avoiding a further deterioration of the sovereign credit profile. However, the risks of increased indebtedness and weak debt affordability remain.
Moody’s could upgrade the rating if India’s economic growth potential significantly exceeds expectations, supported by an effective implementation of economic and financial sector reforms that could lead to a significant and sustained rebound in private sector investment.
A continued rise in India’s debt burden could weaken its fiscal strength and lead to a negative rating action.
Moody’s has forecast that India’s real GDP will grow by 7.6% in FY23 and 6.3% in FY24.
Furthermore, the agency does not expect increasing challenges for the global economy, including the impact of the military conflict between Russia and Ukraine, higher inflation and the tightening of financial conditions as a result of the policy tightening, which will hinder India’s ongoing recovery from the economic crisis. pandemic in India. 2022 and 2023.
“We expect India’s public debt burden to peak at approximately 84% of GDP in the fiscal year ending March 2021 (fiscal 2020), up from pre-pandemic levels of approximately 70% in fiscal 2018. expect debt to stabilize at around 80% of GDP, still significantly above the Baa-rated peer median of about 55%,” it said.