SINGAPORE: Moody’s on Monday downgraded India’s rating to BAA3 from Baa2 and maintained the negative outlook.
Moody’s Investors Service in a statement on June 1 also downgraded India’s short-term local-currency rating to P-3 from P-2, saying “the country’s policymaking institutions will be challenged in enacting and implementing policies which effectively mitigate the risks of a sustained period.”
Moody’s made it clear that “while today’s action is taken in the context of the coronavirus pandemic, it was not driven by the impact of the pandemic. 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 said.
It said the negative outlook reflects dominant, mutually-reinforcing, downside risks from deeper stresses in the economy and financial system that could lead to a more severe and prolonged erosion in fiscal strength than Moody’s currently projects.
It may be recalled that both Moody’s and Fitch Ratings had in April warned that deterioration in India’s fiscal outlook as a result of lower growth could put pressure on its sovereign rating. Fitch had said its assessment of India’s rating in such a scenario would be guided by its judgment of the country’s probable medium-term fiscal path in the post-crisis environment.
Moody’s also revised its FY21 GDP estimate for India to 4% contraction against 0% growth projected earlier, citing shock from the coronavirus pandemic related lockdown measures. However, it hopes for a V-shaped recovery with economic growth projected to pick up at 8.7% in FY22 and 6% thereafter.