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Moody’s Downgrades India’s Outlook To ‘Negative’

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Moody’s Downgrades India’s Outlook To ‘Negative’
Rajat Mishra - 08 November 2019

New Delhi, November 8: Moody’s Investor Services has downgraded India’s outlook to ‘negative’ from ‘stable’. However, the agency has retained India’s credit rating at Baa2. The change in outlook means an upgrade in ratings in the near future is unlikely.

Moody’s said the change partly reflects lower government and policy effectiveness in addressing “economic and institutional weaknesses” that led to a rise in the already high levels of the debt burden.

However, Indian government reacting to this downgrade argued and said, “The fundamentals remain quite robust with inflation under check and bond yields low. India continues to offer strong prospects of growth in near and medium term, India continues to be among the fastest growing major economies in the world. India’s relative standing remain unaffected.”

The IMF in their latest World Economic Outlook stated that India is set to grow at 6.1 per cent in 2019, picking up to 7 per cent in 2020.

There is no doubt that Indian markets and the economy are facing a demand problem. India has clocked a growth rate of 5 per cent for the April-June quarter, which is the lowest in last six years. This is likely to come down further during three-month (July-September) period. Massive layoffs, decline in consumption across rural and urban areas is also an indicator that shows all the bad in the economy.

But the government is in a denial mode and is not at all willing to accept the downturn in the economy. This time also when Moody’s downgraded India’s outlook, the government said that they have undertaken a series of financial sector and other reforms to strengthen the economy as a whole and the government has taken decision to proactively beat the slowdown.

The ratings agency upgraded India’s sovereign rating to Baa2 from Baa3 in 2017, the lowest investment-grade rating. This was seen as an endorsement for prime minister Modi’s reform agenda.

But in its Thursday report, Moody’s said it “considers the prospects for effective implementation of such reforms to have diminished since its upgrade of India’s sovereign rating in 2017.”

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